Economics of compressed air energy storage to integrate wind power: A case study in ERCOT

Compressed air energy storage (CAES) could be paired with a wind farm to provide firm, dispatchable baseload power, or serve as a peaking plant and capture upswings in electricity prices. We present a firm-level engineering-economic analysis of a wind/CAES system with a wind farm in central Texas, load in either Dallas or Houston, and a CAES plant whose location is profit-optimized. With 2008 hourly prices and load in Houston, the economically optimal CAES expander capacity is unrealistically large – 24 GW – and dispatches for only a few hours per week when prices are highest; a price cap and capacity payment likewise results in a large (17 GW) profit-maximizing CAES expander. Under all other scenarios considered the CAES plant is unprofitable. Using 2008 data, a baseload wind/CAES system is less profitable than a natural gas combined cycle (NGCC) plant at carbon prices less than $56/tCO2 ($15/MMBTU gas) to $230/tCO2 ($5/MMBTU gas). Entering regulation markets raises profit only slightly. Social benefits of CAES paired with wind include avoided construction of new generation capacity, improved air quality during peak times, and increased economic surplus, but may not outweigh the private cost of the CAES system nor justify a subsidy.

Research highlights
► Sizes of CAES and transmission paired with a Texas wind farm are optimized for profit.
► A profit-maximizing wind farm owner would not invest in a dedicated CAES system.
► The social benefit of a wind/CAES system is unlikely to outweigh private cost.
► CAES cannot cost-effectively smooth wind power with plausible imminent carbon prices.