The impact of the North Atlantic Oscillation on electricity markets: A case study on Ireland

- Assesses impact of the NAO, via wind-power generation, on the electricity market
- Changes in the NAO index affect economics of thermal and wind generation.
- Case study: thermal generation costs −8%, wind revenue +12%, prices down €1.5/MWh
- Use Conditional Value-at-Risk framework to assess preferences in the presence of risk

The North Atlantic Oscillation (NAO) is a large-scale atmospheric circulation pattern driving climate variability in north-western Europe. As the deployment of wind-powered generation expands on electricity networks across Europe, the impacts of the NAO on the electricity system will be amplified. This study assesses the impact of the NAO, via wind-power generation, on the electricity market considering thermal generation costs, wholesale electricity prices and wind generation subsidies. A Monte Carlo approach is used to model NAO phases and generate hourly wind speed time-series data, electricity demand and fuel input data. A least-cost unit commitment and economic dispatch model is used to simulate an island electricity system, modelled on the all-island Irish electricity system. The impact of the NAO obviously depends on the level of wind capacity within an electricity system. Our results indicate that on average a switch from negative to positive NAO phase can reduce thermal generation costs by up to 8%, reduce wholesale electricity prices by as much as €1.5/MWh, and increase wind power generators' revenue by 12%.