Distributional costs of wind energy production in Portugal under the liberalized Iberian market regime

Wind generation in Portugal and Spain has grown due to a decrease in technology cost and the availability of renewables electricity generation incentives. There is a strong interconnection between Spain's and Portugal's transmission systems, resulting in common prices in both countries. However, Portuguese and Spanish producers receive the incentives for producing wind-based electricity that are specified in their own national policies, resulting in different costs to rate-payers. In this paper, we estimate the costs to Portuguese rate-payers associated with the current market design and policy incentives. To do so, we regress hourly spot electricity market prices as a function of hourly wind generation, and estimate the resulting feed-in-tariff costs distributional effects over the various rate-payer categories. Total costs for rate payer are at the minimum level if joint wind generation in Portugal and Spain increases by 5.5% from what it is today. If wind generation increases much further, then the costs increase due to the FiT overcost increase. If wind generation decreases from current levels, then costs also increase due to the merit-order effect. Furthermore, we find that rate-payer categories will endure different portions of the costs, with an increase in wind generation penalizing predominantly ≤ 20.7 kVA rate-payers.