Wind generation's effect on the ex post variable profit of compressed air energy storage: Evidence from Texas

- Rising wind generation in the discharge hours tends to reduce the profitability of compressed air energy storage (CAES).
- Rising wind generation in the charge hours tends to increase the profitability of CAES.
- A wind generation capacity expansion has offsetting profit effects.
- CAES development helps integrate wind generation capacity into an electric grid.

We use 1401 daily observations in the 46-month period of 01/01/2011-10/31/2014 to estimate wind generation's effect on the daily per MWH arbitrage profits of compressed air energy storage (CAES) in the four regions of Houston, North, South, and West in the Electricity Reliability Council of Texas (ERCOT). We find an increase in wind generation's MWH output in the discharge hours tends to reduce a CAES system's profits. The same MWH increase in the charge hours, however, tends to increase profits. Hence, a wind generation capacity expansion that increases wind MWH in both discharge and charge hours has offsetting profit effects, implying that a CAES unit's profitability is unlikely affected by wind generation development. Sharply contrasting the “gone with the wind” profitability problem faced by natural-gas-fired generation, our findings lend support to the financial attractiveness of CAES, whose development is useful for integrating a rising share of wind generation capacity into an electric grid.