34 General Approaches to Valuing Wind alter market prices and the marginal cost of generation across a power system. It may turn out that the optimum resource displacement occurs in power plants located in adjacent power systems. That, and the basic variability and uncertainty in wind generation, tends to increase the frequency and extent of trading in day- and hour-ahead markets. A thor- ough valuation analysis allows for such trading and will include market transaction costs that may include sufficient transmission wheeling costs to reach the appropriate markets. Costs associated with providing balancing services and various penalties or wind-specific costs may be levied directly by the power system into which a wind project interconnects. If such charges exist, they will make up a part of the valuation analysis. However, the costs incurred by providing balancing services may not be known by the local utility or transmission system operator. The following chapters should be helpful in identifying and calculating such costs directly. 3.2 SUMMARY This chapter outlined the general components that any thorough analysis of wind power economics will address. Realistically, not every last detail is encompassed in every wind integration study. It is reasonable to identify the issues of major concern to a particular utility. Hydro utilities may focus more on operational limitations and the cost of providing down-regula- tion reserves, while a coal-based utility may be more concerned about ramp rates, unit starts, and regulating (fast-responding) reserves. Not every aspect of wind is new, or specific to a wind valuation anal- ysis. The cost of the power plant, financing costs, and value of the resulting generation are issues in common with other technology valuations. Evaluating the value brought by RECs may be a new concept for some utilities, but the concept of estimating the future value of a commodity is similar to estimating market prices for electricity. Specific to wind are the costs of holding incremental balancing reserves, and the cost of dis- patching those reserves to meet the increased variability and uncertainty that are somewhat peculiar to the wind resource. The purpose of this chapter has been to outline the work to be done, without delving into specific details. It may be apparent from this discussion that the behavior of wind is of the utmost import to calculating these costs. Analysts must develop wind generation data from which certain important statistics can be developed. For example, one cannot determine the amount of reserve needed (or the type) without a data set from which to measure wind's variability. Similarly, the frequency of dispatch of resources to balance changes in wind output necessitate a detailed understanding of both the magnitude and frequency of the variations brought by wind.