As the average price of electricity increases wind energy
projects become more viable, especially given the apparent uncertainty
of the PTC. In order to separate changes in wind production
that are due to exogenously determined electricity price increases I
instrument the wind energy supply function using a measure of the
wholesale cost of natural gas that takes into account shipping costs,
the Citygate price. Wind power is very seldom sold in spot or day
ahead markets. This is due to the intermittent nature of wind and
the difficulty of forecasting wind speeds. Thus, I assume here that
wind production does not affect the price of electricity at the margin
because the vast majority of wind power is paid for via power
purchase agreements that are in place well in advance of any market
transaction.