A national laboratory of the U.S. Department of Energy

Office of Energy Efficiency & Renewable Energy

National Renewable Energy Laboratory 

Innovation for Our Energy Future 

Examination of Capacity and 

Ramping Impacts of Wind 

Energy on Power Systems 

B. Kirby 

American Wind Energy Association 

M. Milligan 

National Renewable Energy Laboratory

Technical Report 

NREL/TP-500-42872 

July 2008 

NREL is operated by Midwest Research Institute ● Battelle Contract No. DE-AC36-99-GO10337 
Examination of Capacity and 

Ramping Impacts of Wind 

Energy on Power Systems 

B. Kirby 

American Wind Energy Association 

M. Milligan 

National Renewable Energy Laboratory

Prepared under Task No. WER8.5001 

Technical Report 

NREL/TP-500-42872 

July 2008 

National Renewable Energy Laboratory

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An Examination of Capacity and Ramping Impacts of 

Wind Energy on Power Systems 

Brendan Kirby, Consultant 

American Wind Energy Association 

Michael Milligan 

National Renewable Energy Laboratory 

 

I. Abstract 

When wind power plants serve load within the host balancing area, there is no additional 

capacity that is required to integrate wind power into the system. The wind energy 

displaces conventional generators’ energy, which may result in emission and fuel 

savings, or make it possible to sell additional energy to other customers outside the 

balancing area. This provides a benefit to the sellers and customers. When wind serves 

load outside of the host balancing area, there can be additional capacity requirements, but 

these will depend in part on the length of the market period: faster markets will mitigate 

this requirement, whereas slower markets will exacerbate this capacity requirement. We 

develop a series of very simple thought experiments to illustrate and discuss some 

implications for wind integration studies. 

II. Introduction 

There has been considerable work in recent years on wind integration impacts and costs. 

Most of these studies have featured some combination of statistical analysis on load and 

wind data, along with detailed system simulations of at least one year, using hourly data. 

A common finding among the studies is a need for increased operating reserve to help 

cover the additional variability that wind brings to the system. In most cases, however, 

this operating reserve is not rigorously defined, which has lead, we believe, to some 

fundamental misunderstanding of how wind, load, and reserves interact. The erroneous 

belief is that wind consumes system capacity. In fact, during discussions that we were 

involved with as part of the Northwest Wind Integration Action Plan (NWIAP), the 

opinion was expressed that wind likely has a negative capacity value. 

These misunderstandings arise from inconsistent use of the term ‘capacity’ and about the 

relationship to ramping requirements in systems with significant wind penetrations. In 

our view, another source of confusion is that wind is often compared to base-load 

generation as the “neutral” comparison case. We argue that this is the wrong comparative 

case, and that this source of confusion can distort the measurements of wind’s value and 

costs. In an attempt to help clarify these issues, we develop several simple ‘thought 

experiments’ that are designed to focus on the characteristics of wind and its impact on 

1 
system balance. To keep the exposition simple, we do not use real data, although our 

results can easily be extended to apply to real systems with real data. 

III. Wind Serving Loads within the Host Balancing Area 

The starting point for our analysis is the assumption that wind energy is introduced into a 

power system that can already meet its load obligations, and the wind will be used within 

the balancing area (BA). (We will relax this assumption in a later section of this paper.) 

This assumption has several implications. First, there is sufficient capacity (installed 

generation) to meet the system peak load plus a reserve margin. Wind’s primary value is 

in saving fuel (or water). If the non-wind generation could meet the load without 

depending on wind energy, then the load can be met after wind is added to the system. 

Second, load ramps can be met and balanced by the existing generator fleet; there is 

sufficient ramping capability over all relevant time scales from seconds, minutes to hours 

or longer for the existing non-wind system. Note that we have not assumed anything 

about the ramp requirements of the system once wind has been added to the system; that 

will be discussed shortly. Third, there is sufficient energy to satisfy customer demand 

without depending on the wind energy. 

Figure 1 illustrates a simple case of a flat load and the required generation. In this simple 

case we do not consider reserve requirements: the installed capacity curve is offset from 

the load curve just enough so that both can be seen. 

Capacity to Serve Flat Load

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Capacity MW

Installed Capacity

Load

Extra Capacity

Figure 1 – Flat load requires enough installed capacity to cover load. 

2 
Because there is load variability minute to minute, Figure 2 shows that there must be 

sufficient generation to cover the maximum load, taking into account the short-term 

variability. Because the maximum load will exceed the average load for the period, the 

average load plus the maximum of the regulation impact must be covered by the available 

generating capacity. This regulating reserve does require more capacity than the flat load. 

Wind will generally increase this regulation requirement modestly and will therefore 

have an impact on minute-to-minute regulating capacity requirements. Because we wish 

to investigate wind’s impact on ramping requirements, as distinct from the minute-tominute regulation variability, and to keep the examples simple and clear, we will remove 

the minute-to-minute variability for the present. 

Capacity to Serve Varying Load

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Capacity MW

Installed Capacity

Load

Extra Capacity

Figure 2 – Minute-to-minute regulation requires additional capacity. 

Intera- and inter-hour ramping requirements are much greater than minute-to-minute 

regulation requirements, but the characteristics are different. Figure 3 shows the impact 

of the morning load ramp. For simplicity in the graph and for the example, we have 

dropped the regulation reserves, but of course there is still a need for that. What is 

apparent from the graph is that there is no need for additional capacity to provide for the 

load ramp. Capacity that will be used to supply energy from 10:00 to 12:00 is available to 

follow the 9:00 to 10:00 ramp because it was not supplying energy before 9:00. 

3 
Additional movement is required from the existing capacity so that the system remains in 

balance, but no additional capacity is required beyond what is needed to meet the peak 

hour energy requirement. 

We now create a simple scenario with constant load and variable wind. For this example, 

we assume that wind energy is only produced from 8:00-10:00, and hold the load 

constant. Figure 4 shows 500 MW wind output from 8:00-9:00, ramping down from 

9:00-10:00. The wind energy delays the need for 500 MW of other generation until 9:00, 

at which time the wind begins to reduce its output, causing a need for an offsetting 

increase in the other generation. From 10:00-12:00 the conventional generation is 

positioned exactly where it was in the no-wind case. From 8:00-9:00 there is a reduction

in the conventional capacity required compared to the no-wind case, and this reduction is 

gradually reduced from 9:00-10:00, but there is never an increase in conventional 

generation capacity above what was already required to serve load. 

Capacity to Serve Ramping Load

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Capacity MW

Installed Capacity

Load

Extra Capacity

Figure 3 – Load ramps do not require additional capacity, just additional movement of existing 

capacity. 

4 
Wind Serves Internal BA Load

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation

Load

Wind

Extra Capacity

Figure 4 – Wind serving loads within the host BA does not require additional capacity, just 

additional movement of existing capacity. 

Our simplistic graph does not show the variability of the wind during the 8:00-10:00 

period. Suppose now that the wind varies between 300-500 MW during the period 8:00-

9:00. In this case, instead of a reduction in conventional generation of 500 MW for the 

hour, this reduction would vary between 300-500 MW. However, it is clear that there is 

no need for conventional capacity beyond what is already required for the load. 

It is also clear that the addition of wind does not increase capacity requirements when 

wind is used to serve internal BA loads. Later we will discuss the additional off-system 

energy sales opportunities created when wind serves internal BA loads, and limitations 

on those opportunities imposed by imperfect forecasts, but first we will discuss the 

conceptually simpler case where wind simply serves off-system loads. 

5 
IV. Wind Serving Loads External to the Host Balancing Area (BA) 

In the previous section we showed that when wind is serving load within the host BA, it 

does not require additional capacity. In this section we show that when wind serves load 

outside of the host BA, there is an additional capacity requirement. That additional 

capacity requirement is tied to the nature of transactions between BAs, and is not due to a 

physical capacity need. We also show that there are institutional mechanisms that can be 

used to reduce or eliminate this capacity need. For this example, we assume that the 

region runs hourly dispatch/market schedules for inter-BA transactions. We show how 

this assumption affects the outcome in a later section of this paper. 

Figure 5 illustrates our example. Wind generation in one BA is being delivered to another 

BA. Just before 9:30, the wind generation drops over a 15-minute period. The region only 

allows inter-BA schedules to change at the top of each hour, however, so the host BA 

must continue delivery of the scheduled wind energy from the non-wind fleet until the 

top of the next hour. In this case, the host BA generation must exceed its load for the 

duration of the market period; this represents a capacity requirement on the host. 

Wind Serves External Load

0

500

1000

1500

2000

2500

3000

3500

4000

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation

Load

Wind

Extra Capacity

Figure 5 – Wind serving loads outside the host BA does require additional capacity; the host covers 

the wind delivery until the end of the scheduling period, 1 hour. 

Unfortunately, from the point of view of the receiving BA, the capacity used by the host 

to maintain the wind schedule is of no benefit. The receiver cannot use this capacity, and 

the only real impact is a delay in response speed for the generators in the receiving BA. 

This is shown in Figure 6. Because the market period clears hourly, the delivered wind 

6 
power differs from the actual wind power as a result of the host covering the schedule. 

The receiver does need to respond to the change in wind power, but this response does 

not happen until the next market period. Therefore, there is a delay in the required 

response from the receiver, but there is no capacity advantage for the receiver. 

External BA Receives Wind

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation Responds to Delivery

Generation Responds to Wind

Load

Actual Wind

Delivered Wind

Extra Capacity

Figure 6 – The BA that receives the wind does not get a capacity benefit, only a delay in response 

speed. 

7 
The extra capacity requirement on the host can be eliminated if the receiver can rapidly 

respond to the change in wind output. This can be accomplished by several means, and 

will be discussed below. Figure 7 shows the impact on both BAs. When the wind output 

falls, as shown in the left panel of the figure, the host does not need to respond because 

the receiver does. In the right side of the figure, the dotted line shows the delayed 

response from the previous case that is no longer required. Instead, the receiver increases 

generation as the wind drops off. It seems clear from this example that the excess 

capacity need can be eliminated if the receiver has a way to quickly respond to the wind.1

This can be accomplished in several ways: 

• a dynamic schedule or pseudo-tie that dynamically moves the wind generation to 

the receiver’s BA 

• faster market-clearing periods 

• bi-lateral agreement between the BA 

• combined operation of the two BAs. 

Wind Transferred To External BA

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation

Load

Wind

Extra Capacity

External BA Receives Wind

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation Responds to Wind

Foregone Delayed Response

Load

Actual Wind In Sending CA

Extra Capacity

Figure 7 – No additional capacity is required if the receiving (external) BA responds when the wind 

drops. 

 

1

 The receiving area response requirement may in fact be easier to meet when it is responding directly to 

changes in the wind. This is because inter-BA schedule changes occur over 20 minutes (10 minutes in the 

east) while the wind ramp may be moving at a slower rate. 

8 
While a full dynamic schedule or pseudo-tie can be used to essentially move a wind 

generator (or any generator) from the physical host BA to the BA with the load it is 

serving, this is not always necessary. Providing a means to adjust inter-BA schedules 

every five to fifteen minutes may be simpler, cheaper, and more flexible in many cases. 

V. Wind-Created Off-System Sales Opportunities 

So far, we have seen that no additional capacity is required when wind is used to serve 

load within the host BA. We have also seen that no additional capacity is required when 

wind serves load in an adjacent BA if the inter-BA schedules can be adjusted within the 

hour. Any additional capacity requirement is an artifact of inter-BA scheduling 

limitations and provides no real benefit to anyone. It is a true economic inefficiency. 

Returning to the example of wind supplying load within the physical host BA examined 

in section III, we find that the addition of wind may create an opportunity for additional 

inter-BA sales for the non-wind generators. When wind is supplying load, the displaced 

non-wind generation is available to supply other loads. For example, if the wind energy 

can be predicted with certainty (we relax this assumption shortly), this creates the 

opportunity for increased off-system energy sales from 8:00-9:00, tailing off from 9:00-

10:00 as shown in Figure 8. This energy sale from the existing conventional generation is 

made possible by the wind, because without the wind, the conventional generation would 

be needed to serve the load. 

9 
Wind Serves Internal BA Load

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation

Load

Wind

Extra Capacity

Wind-induced sales

Wind energy

Figure 8 – Wind serving load within the host BA makes it possible for additional energy sales that 

benefit the BA and its customers. 

Imperfect load forecasts, wind forecasts and inter-BA scheduling restrictions create a 

problem, however (we ignore the impact of load forecast errors in this discussion). As is 

the case of wind generation in one BA serving load in another BA examined in section 

IV, the physical host BA may have to continue to supply the scheduled power for the 

remainder of the hour even if the wind drops unexpectedly. This will require additional 

generating capacity, similar to that shown in Figure 5. Is this an additional capacity 

requirement imposed by wind? No. It is a limitation on the additional off-system sales 

opportunity created by the wind. 

Because wind forecasts are not perfect, it is likely that the system operator would not 

want to enter in to a firm off-system sale for all of the wind energy, allowing for some 

forecast error. To retain the simplicity of our analysis, we assume that some fraction of 

the wind forecast will be sold in the forward market, leaving some additional wind that 

could be sold in the real-time imbalance market. We arbitrarily divide the sale made 

possible by wind geometrically in half for illustration. As shown in Figure 9, the addition 

of a wind forecast error does not increase the capacity needs of the BA compared to the 

no-wind case. Because the actual wind is the same as in the previous case, the required 

physical response is also the same. However, forecast error does impact the nature of the 

off-system energy sales opportunity which the addition of wind creates. Based on the risk 

preferences of the system operator, the characteristics of the units on the dispatch stack, 

and the expected wind forecast error, there could be a difference in the way that the 

system is positioned going in to the operating hour. 

10 
Wind Serves Internal BA Load

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation

Load

Wind

Extra Capacity

Sold in imbalance market/non-firm; 

based on wind forecast uncertainty

Wind energy

Sold firm subject to 

wind forecast error

Separates wind that

is ‘counted on’ vs. wind 

that is not counted on

Figure 9 – The amount of wind-induced energy sold may be less than the total wind energy based on 

wind forecast uncertainty. 

In systems that have significant controllable hydro, for example, it may be possible to 

significantly reduce or eliminate the uncertainty of the wind forecast. The hydro system 

could potentially be used to store the wind energy for 2 hours before re-delivering it. 

Because the wind generation would then be known with certainty, the split between a 

firm and non-firm sale such as shown in Figure 9 would not be relevant because all wind 

could be sold as firm. 

VI. Load Following As a Byproduct of Fast Energy Markets or the 

Economic Dispatch Stack 

When wind is providing energy to its native BA, we have shown that there is no need for 

additional capacity, relative to the no-wind case. It is clear that wind will likely impose 

additional ramping requirements on the system. Before discussing the impact of wind on 

ramping in more detail, we first examine the relationship between load following and 

energy markets. Our discussion can easily be applied to vertically integrated utilities that 

practice economic dispatch, however, for the discussion we focus on the case of an open 

energy market. 

11 
To sell energy into a market, it is necessary for the generator to be maneuvered to the 

appropriate level of output. Base-load units are typically not required to maneuver much 

as they supply energy. The unit commitment process selects the unit for operation; the 

unit is started and brought to its rated capacity over a period of hours. The low operating 

cost of base-load units (below the market clearing price) allows them to participate in 

energy markets by continuously operating at their full economic output. 

Intermediate and peaking units operate differently. Their somewhat higher operating cost 

is not always below the energy market clearing price so they do not participate in the 

market unless the clearing price is at or above their cost of generation. These units may 

not run at night when prices are low, for example, but instead operate and sell energy 

during the day. In order to sell into a given hourly market, the intermediate unit must 

position itself so that it can sell the prescribed energy for the duration of the market 

period. In subsequent market periods, the generator must again move to a new output 

level if it will sell more or less energy than in the first period, depending on its operating 

cost and the market clearing price. Failure to respond to market prices seriously hurts an 

intermediate unit. The unit incurs a lost opportunity if the market price is high and it does 

not turn on and ramp up to sell. Similarly, the intermediate unit looses money if the 

market price is below its operating cost and it does not turn off or minimize production. 

Energy markets are able to obtain a great deal of load following response from 

intermediate and peaking generators without explicitly paying for it. This is very different 

from regulation where the system operator must purchase a specific regulation ancillary 

service. 

Most of the time the intermediate and peaking units can position themselves as needed, 

and each interconnection has procedures for allowing for the required ramps so that at the 

top of the hour, units have achieved their desired level of output. However, there are 

times when the generators can’t move quickly enough, which results in very high energy 

prices for a short duration of time. This situation can arise if the dispatch stack is not 

sufficiently deep or if sufficient ramping capability does not exist. Figure 10 shows an 

example of a base-load unit that is on the margin that is unable to ramp quickly enough 

between 8:30 and 9:00 to meet the load, which ramps quickly during this time. Instead, 

fast maneuverable generation, such as a peaking unit with very high marginal cost, must 

be dispatched to cover the ramp. Once the base-load unit catches up to the load, the 

peaking unit is no longer needed. If the energy price is set based on the marginal unit, the 

price will rise from $10.00/MWh at 8:30 to $90/MWh from 8:30-12:30, and then fall 

back to $10/MWh. In this case, the price spikes because the marginal generator is not 

nimble enough to fully participate in the energy market starting at 9:00. 

12 
2400

2600

2800

3000

3200

4:00

4:45

5:30

6:15

7:00

7:45

8:30

9:15

10:00

10:45

11:30

12:15

13:00

13:45

14:30

15:15

16:00

16:45

17:30

MW

Base Load - $10/MWh

Peaking -

 $90/MWh

Total Load

Enery Price 

Clearly 

$10/MWH

Enery Price 

Clearly 

$10/MWH

What is the 

Correct Energy 

Price?

Figure 10 – Load following is a distinct service that is needed if ramping capability impacts the 

energy market unit selection. 

Conversely, if the load had followed the capability of the base-load unit, the required load 

following would have simply been extracted from the energy market. The generator 

would have been able to position itself to provide energy for load, and no distinct load 

following service would have been needed. 

Introducing wind into the example, Figure 11 shows that the ramp requirement may 

increase further. We have purposely provided a challenging case; the solid line shows the 

net load after wind energy is applied to the needed load. At 5:30, wind generation 

increases, which in turn decreases the capacity and energy required from the base-load 

unit. At 6:30, the wind reaches its maximum generation level, and remains there until 

8:30, at which time the wind falls off quickly. 

13 
2400

2600

2800

3000

3200

4:004:45

5:306:157:007:458:309:15

10:0010:4511:30

12:15

13:00

13:4514:3015:15

16:00

16:45

17:30

MW

Base Load - $10/MWh

Peaking -

 $90/MWh

Total Load

Enery Price 

Clearly 

$10/MWH

Enery Price 

Clearly 

$10/MWH

What is the 

Correct Energy 

Price?

Wind Energy

Figure 11 – Wind energy can increase ramping requirements and provides additional energy, but 

does not require more capacity. 

When the wind picks up at 5:30, the base-load generation reduces its output. Although in 

our example we assume that there is sufficient downward flexibility, this need not be the 

case. When the wind begins to reduce output at 8:30, the ramp requirement is even 

steeper than in the no-wind case, which required a peaking unit to pick up the ramp. 

Clearly, in this example, wind has increased the need for load following and additional 

peaking capacity (or other fast-ramping unit) is required to maintain system balance. 

In this example, no additional capacity is needed to maintain system balance. The wind 

reduces the conventional capacity usage from 5:30-9:00 and imposes an additional 

downward ramp requirement on the base unit. Wind further exacerbates the ramping 

shortfall from 8:30-9:00, but does not require additional capacity. Instead, wind imposes 

a need for more flexible capacity. If that flexibility cannot be provided from the energy 

market, it must be provided by a load following market or by emergency provisions. 

VII. Market Evidence from New York Independent System Operator 

(NYISO) Data 

Existing energy markets provide evidence that load following can be provided by energy 

market movements. Clearly, all hourly markets follow the rise and fall in generation 

required to match the daily load pattern without resorting to a special load-following 

charge. Energy prices during the afternoon are simply higher than energy prices in the 

middle of the night. Data from sub-hourly energy markets show that faster generator 

14 
response is also provided from energy markets without resorting to a special loadfollowing charge. 

An examination of sub-hourly energy markets shows that the energy markets themselves 

provide an incentive for generators to respond to power system needs for movement, and 

they do it without incurring costs to customers. ERCOT, PJM, NYISO, ISONE, MISO, 

and CAISO2 all operate sub-hourly energy markets which are capable of responding to 

wind and load variability, and forecast error. We examined a year of sub-hourly price 

data from NYISO. 

Examination of price data from the NYISO 5-minute real-time market provides insights 

into how load following can be extracted from sub-hourly energy markets at little or no 

cost. NYISO 5-minute real-time energy market price-data was examined for all of 2006 

to determine if there is a cost associated with obtaining sub-hourly response from 

generators. Clearly, obtaining minute-to-minute response is costly since regulation is 

always the most expensive ancillary service, with prices that remain high even at night. 

Presumably then, 5-minute response would be more expensive than hourly response. 

NYISO data provides some surprising results. 

Regulation markets specifically procure maneuvering capacity from generators. When a 

generator sells a MW of capacity to the regulation market for an hour the generator gives 

the system operator the right to move the generator’s real-power output anywhere within 

the sold range in whatever manner the system operator desires. Generators participating 

in sub-hourly energy markets, on the other hand, do not sell control; they simply respond 

to energy price signals. Further, prices seldom go to zero or negative. This means that a 

generator’s response incentive in any given sub-hourly interval depends on the 

generator’s production cost; some generators will have an incentive to respond, and 

others will not. Any are free to maintain a constant output and accept the hourly average 

price if their maneuvering cost is too high. Studying a year of 5-minute price data, we 

found that the NYISO 5-minute market provides a significant response incentive with the 

high and low prices for each interval in the hour differing by $17.41/MWh on average. 

The market is continuously sending the 5-minute market a strong price signal to move up 

or down. 

Figure 12 presents a simplified twenty minute example. Market prices are shown in the 

upper part of the graph. The 5-minute market price varies for every interval between 

$55/MWh and $75/MWh. Clearly, any generator with a production cost below $55/MWh 

will provide full output continuously, and will have no incentive to maneuver because it 

is making a profit during every interval. 

Things are more interesting for a generator with a production cost above $55/MWh. The 

lower portion of Figure 12 shows the profit that a generator with a $60/MWh production 

cost would receive from the two behaviors in the market. The generator would earn a 

 

2

 Electric Reliability Council of Texas (ERCOT), PJM Interconnection (PJM), Independent System 

Operator of New England (ISONE), Midwest Independent System Operator (MISO), California 

Independent System Operator (CAISO) 

15 
$5/MWh profit if it maintained a constant output ($65/MWh average price - $60/MWh 

production cost). It would earn $7.50/MWh profit ($75/MWh price - $60/MWh 

production cost = $15/MWh profit for half of the time and $0/MWh for the other half of 

the time), $2.50/MWh more, if it responded to the 5-minute price signal and curtailed 

production during the intervals that the price was below its production cost (we have a 

very flexible generator in this simplified illustrative example). 

$0

$10

$20

$30

$40

$50

$60

$70

$80

0:00 0:05 0:10 0:15 0:20

Energy Price - $/MWH

$0

$5

$10

$15

$20

$25

$30

$35

$40

Generator Profit - $/Hr / MW

5-Minute Price

Generator Production Cost

Constant Output Average Profit

5-Minute Response Profit

$60/MWH

Production

Cost $65±10/MWH

Figure 12 – A simplified twenty-minute example shows there is an incentive for some generators to 

respond to 5-minute price signals. 

The 5-minute market provides an economic incentive for generators with marginal costs 

that are close to the market clearing price to respond. Figure 13 shows how the incentive 

to respond (green solid curve) changes as a function of generator production cost, 

peaking when the production cost is equal to the market prices. Note that while the 

incentive to respond rises as generator production cost rises, the actual profit the 

generator receives for either behavior declines (blue dashed and red dotted curves). 

The NYISO market provides a real-world example of these price incentives. NYISO 

operates both 5-minute and hourly real-time markets: 

• $55.51/MWh average day-ahead hourly price 

• $52.01/MWh average real-time 5-minute price 

• $3.50/MWh average fast-market participation penalty. 

16 
$0

$1

$2

$3

$4

$5

$6

$40 $45 $50 $55 $60 $65 $70 $75 $80

Generator Production Cost $/MWH

5-Minute Market Premium - $/Hr / MW

$0

$5

$10

$15

$20

$25

$30

$35

$40

Generator Profit - $/Hr / MW

5-Minute Generator Market Response Premium

Generator Constant Output Hourly Market Profit

Generator 5-Minute Response Market Profit

5 Minute Market

Price Range

Figure 13 – The sub-hourly response incentive is a function of the generator's marginal production 

cost. 

The average energy price for all of 2006 was $3.50/MWh higher in the day-ahead hourly 

market than in the 5-minute real-time market. This price difference reflects the difference 

in value of day-ahead commitment vs. the real-time transaction, as well as any difference 

associated with the faster 5-minute response. This appears to say that there is no overall 

cost to the power system associated with obtaining 5-minute response from generators; in 

fact, the faster market clears at a lower price on average. 

Given that the hourly market yields a higher average price than the 5-minute market, and 

given that any unit capable of responding to the 5-minute market is capable of responding 

to the hourly market (but the opposite is not necessarily true), one wonders why any 

generator would choose to participate in the 5-minute market instead of the hourly 

market? One answer lies in a more detailed look at the two markets. 

While the annual average prices for the two markets are fairly close, prices during 

individual 5-minute intervals differ significantly. The annual average of the price 

difference absolute-value during each 5-minute interval is $17.41/MWh. The NYISO 

market is continuously sending the 5-minute market a very strong price signal to move up 

or down with respect to the hourly market. 

Figure 14 presents results from examining potential generator profits achieved when 

responding to the actual NYISO 5-minute price signals vs. providing constant output 

throughout the hour for all of 2006. The response incentive is negative for generators 

17 
with a production cost below $40 because the day-ahead hourly market has a higher 

average price than the five-minute market. A generator that will not be better off in the 

five-minute market will be committed to the day-ahead market. A generator with a 

production cost above about $40/MWh3, however, has an incentive to respond to the 5-

minute market price signals. Of course, any actual generator will move between the two 

markets throughout the year as price signals dictate. The incentive to respond is higher 

for high-cost generators, both in absolute dollars and as a percentage of their total profit. 

-$30,000

-$20,000

-$10,000

$0

$10,000

$20,000

$30,000

$20 $30 $40 $50 $60 $70 $80 $90 $100

Production Cost - $/MWH

Response Incentive - $/MW / Yr

$0

$100,000

$200,000

$300,000

$400,000

Generator Profit - $/MW / Yr

Fast Response Premium

Hourly Market Profit

5-Minute Market Profit

Figure 14 – Price data from NYISO 5-minute and hourly 2006 markets shows that generators with 

production costs around $40/MWh have an incentive to respond. 

The net result is that regions that operate sub-hourly energy markets inherently provide 

economic incentives to specific generators to voluntarily provide intra-hour response and 

they can do this at no added cost. While minute-to-minute regulation is inherently an 

expensive ancillary service, intra-hour load following need not be. 

VIII. Implications for Wind Integration Studies 

There are two main implications for our analysis of wind integration studies. The first 

implication is that, depending on the generator characteristics and wind penetration, the 

load following impact of wind will depend on whether there is sufficient ramping 

capability in the energy units (and whether the market structure provides access to that 

 

3

 The price where the response incentive starts is higher at locations with losses and congestion costs, but 

the concept is the same. 

18 
capability). The second implication is that integration studies may incorrectly define the 

no-wind case that is compared to the wind case. We discuss each of these below. 

How does Wind Affect Load Following? 

Over the past several years there has been increasing interest and effort in performing 

wind integration studies. The methods and assumptions of these studies are similar, and 

one of the challenges is to define a suitable base case with no wind so that the wind 

impacts and integration cost can be meaningfully compared. 

In several studies, particularly those involving large BAs, the load following impact of 

wind integration is zero or small. Table 1 is adapted from Smith et al (2007, “Best 

Practices in Grid Integration of Variable Wind Power: Summary of Recent US Case 

Study Results and Mitigation Measures” presented at the European Wind Energy 

Conference, Milan, Italy, May 2007). For these studies, the energy market or economic 

dispatch stack provided enough maneuverability so that modifications to the least-cost or 

market dispatch to cover ramps were not necessary. We have shown that if sufficient 

ramping capability is available from units on the margin of the energy market, then there 

is no additional need for a ramping service—it is provided as a by-product of the energy 

market. 

Table 1 – Integration cost studies often find no load-following cost impact of wind. 

Date Study Penetration Regulation 

Cost 

Unit 

Commitment 

Gas 

Supply 

Cost 

Total 

Operating 

Cost Impact 

Nov 06 MN/MISO 35% capacity 

25% energy 

$0.15 $4.26 na $4.41 

Apr 06 Xcel-PSCo 15% capacity $0.20 $3.32 $1.45 $4.97 

Jun 06 CA RPS Multi-yr 4% capacity $0.45 na na $0.45 

Feb 07 GE/Pier/CAIAP 20% capacity $0-$0.69 na na $0-$0.69 

What Is The Relevant No-Wind Case For Integration Studies? 

Our analysis also suggests that it is critical to carefully define the base case for wind 

integration studies. The critical issue is to separate and isolate the wind integration cost 

from the value of the energy that wind produces. One common technique that is used to 

assess wind integration cost uses a hypothetical generator that produces the same energy 

as the wind plant, but delivers this energy as a flat block. The intent of this technique is to 

focus on wind’s impact on variability and uncertainty. Because the flat block is neither 

variable nor uncertain, this is an often-used base case that is compared to the wind case to 

determine the integration cost of wind. In systems that have the opportunity to sell excess 

energy, this approach may overstate wind’s integration cost if energy sales are not 

carefully defined. 

Figure 8 illustrates wind serving load within the host BA, discussed above. The figure 

shows the increased energy sales that are made possible by wind, ignoring for the 

moment any wind forecast errors or the impacts of those errors on prospective 

transactions. Figure 15 is based on Figure 8, and shows how the wind energy might be 

converted into the flat block of energy for the comparison case, and shows the 

19 
corresponding energy sale as the broken lines, one indicating wind generation as a flat 

block, and the other showing the additional sales the flat block would make possible. 

Within Figure 15, we now have three distinct cases: (a) no wind, (b) actual wind, and (c) 

flat-equivalent wind. The question is which case, (a) or (c), should be used as the 

reference case to analyze wind integration impacts? 

If case (a) is used as the reference case, the additional variability and uncertainty that 

wind brings in (b) is accounted for. The additional sales that wind makes possible are 

valued as-delivered. In our simple example, the wind energy is delivered at a time when 

energy prices are likely lower than prices later in the day. As pointed out in Figure 9, it is 

unlikely that all of the wind energy can be sold firm, even with fast energy markets. 

Instead, some of the wind energy may be sold either as non-firm or as part of imbalance 

settlements, depending on the market structure. In any analysis of wind impacts, it is 

important to define what wind is compared to. In this example, wind is compared to the 

displaced unit or units, which will back down by the amount of the wind energy if no 

additional sales are possible. 

If case (c) is used as the reference case, the wind plant is penalized because it may 

provide energy during times when energy prices or marginal dispatch costs are low, and 

does not provide much energy when energy prices or marginal dispatch costs are high. In 

addition, the flat block is known in advance and can be sold in its entirety as firm energy. 

Because some of the wind will be sold as non-firm or in the imbalance market, there will 

likely be a differential in the revenue received when we compare cases (b) and (c) that 

arise because of the timing of wind and the level of confidence applied to the wind 

forecast. A flat block of energy is not the alternative to the with-wind case; the flat block 

is simply not available. 

In our view, case (c), which compares wind to a flat block, captures a combination of 

integration cost and value of the wind compared to base-load generation. The cost impact 

is captured because wind brings additional variability and uncertainty compared to the 

flat block case; however, the differential in energy sales that can be realized because of 

the timing and predictability of the energy are differences in value, not cost. 

In cases when wind is brought in to offset energy production from thermal units, saving 

fuel and reducing emissions, the relevant comparison case would be the no-wind case. In 

cases where wind is being compared to other potential types of generation, the specific 

alternative generation could be used as the comparison case, but we think it is important 

to recognize the difference between integration cost and value. 

There may be ways to isolate cost from value. One approach would be to create flat 

blocks of wind-equivalent energy and separate them based on periods of high or low 

energy value. Some markets have defined heavy load hours and light load hours; this 

would help separate the value from cost. If market prices are available for markets that 

run hourly, that would further enhance this separation. 

20 
Flat-block equivalent wind

Flat-block equivalent sales

Wind Serves Internal BA Load

0

500

1000

1500

2000

2500

3000

3500

8:00 8:30 9:00 9:30 10:00 10:30 11:00 11:30 12:00

Load and Generation MW

Installed Capacity

Generation

Load

Wind

Extra Capacity

Figure 15 – Example of a flat-block equivalent benchmark for wind integration studies that increases 

energy sales. 

IX. Summary and Conclusions 

When wind is serving load within the host BA, wind does not increase the requirements 

for capacity in that balancing area. Instead, existing capacity is used in a different way 

and on a different schedule. Wind may increase the need for fast ramping from 

conventional units, but this ramping is supplied from capacity that already exists. When 

wind serves load outside the host BA, there may be additional capacity required by the 

host to hold the wind’s schedule until the beginning of the next market period or 

scheduling period. If generation is only dispatched hourly, this capacity requirement 

could potentially be significant. However, the capacity requirement is an artifact of the 

scheduling restrictions and provides no physical value to anyone. The additional capacity 

requirement can be reduced or eliminated by a variety of means that include faster market 

periods, dynamical scheduling, or other bi-lateral arrangements. 

When wind integration studies utilize a flat-block wind-equivalent benchmark, care must 

be used to ensure that wind’s value is not commingled with its integration cost. Because 

wind energy creates the opportunity for other units’ energy to be sold, the revenue from 

21 
22 

this sale should be separately recognized. It may be appropriate to net this benefit against 

the cost of additional flexibility that is required to balance the system with significant 

levels of wind energy. 

The increased load following that wind induces can often be supplied by fast energy 

markets. To participate in fast markets, generators must be able to position themselves so 

that they are physically able to sell the energy they have contracted for. This movement, 

or ramp, can help balance the system. When there is insufficient ramping capability in the 

economically dispatched units, quick-start generators may be required to run out of merit 

order so that the fast ramp can be covered until the slower intermediate units can respond. 

We also show that prices in the NYISO appear to properly encourage generators to 

respond to price signals in fast markets, thereby supplying the load following that is 

needed. 

Acknowledgments 

The authors thank Ken Dragoon, Renewable Northwest Project for helpful suggestions 

and discussion. 
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When wind plants serve load within the balancing area, no additional capacity is required to integrate wind power into 

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