Incremental wind energy development in the Midcontinent Independent System Operator electricity markets of the United States

In this paper we project how much incremental wind energy development may occur without causing inadequate investment incentives (also known as missing money) for wind generation and natural-gas-fired generation in the day-ahead market and real-time market of the Midcontinent Independent System Operator (MISO) in the United States. Using a large sample of hourly data for the 82-month period of January 1, 2014 to October 31, 2020, we document that the day-ahead market’s hourly investment incentives move with the day-ahead forecast of daily natural gas prices; MISO’s day-ahead hourly requirements of ancillary services; MISO’s zonal day-ahead hourly schedules of nuclear generation, wind generation and must-run generation; and MISO’s zonal day-ahead forecasts of hourly loads. Findings based on the real-time market’s hourly data tell a similar story. Further, the negative effect of incremental wind energy development on investment incentives over the forward-looking period of 2023–42 is offset by the positive effect of a rising natural gas price, nuclear plant retirement, declining must-run generation and growing demand. In the extreme case of nuclear plant retirement and zero must-run generation, incremental wind energy development of up to around 441% of the existing level of wind generation may occur as a market-based outcome without missing money in MISO’s day-ahead market.