Impact of short-term wind forecast accuracy on the performance of decarbonising wholesale electricity markets

As the proportion of variable renewable generation capacity in our electricity systems rises, so too will the associated absolute forecast errors in their generation. This work quantifies the complex interactions between short-term renewable generation forecasts, short-term demand forecasts, generator unit commitment and economic dispatch in electricity systems with levels of variable renewable generation spanning 49–79% of annual electricity demand. When the short-term operational uncertainty caused by renewable generation becomes larger in absolute terms than that of demand, the accuracy of renewable generation forecasting has a critical influence on electricity market performance. That is, inaccurate short-term wind forecasts can increase hours of unserved energy and scarcity hours spent at market price cap, increase total system costs and prices, significantly increase returns to thermal generators and energy storage, reduce returns to wind generators, and increase greenhouse gas emissions slightly. For the generalised case study considered in this work, the value of improved short term wind generation forecasts looks to becomes significant once variable renewables generate more than roughly 60% of annual electricity demand. Reductions in average market prices of 5 $/MWh or more then appear plausible as acceptable levels of reliability are recovered. As such, improvements in short-term renewable generation forecasting are likely required in order to justify continued investment in variable renewables as the major means of achieving decarbonisation efficiently and reliably, and these could be achieved by any combination of improved forecasting, dispatch control or on-site firming. •Absolute forecast errors in wind generation increase with system decarbonisation.•We undertake market performance simulation with a range of wind forecast accuracy.•The value of improved forecasts becomes significant with 60% VRG penetration.•Value is realised in reduced scarcity hours, reduced system costs and emissions.