"The Unbearable Lightness of Wind" (EU update)
[Editor note: Ross McCracken is editor of Platts Energy Economist]
Where support mechanisms are sufficiently generous, wind power is racing ahead. In the European Union, where supported by feed-in tariffs in countries like Germany and Spain, wind power targets are very likely to be met, if not exceeded. Last year, more wind capacity was installed in the EU than any other energy source, for the first time outstripping even natural gas.
Wind has become the “market choice” because the technology is mature, bank lending is assured where prices are guaranteed, and the supply-side has been steadily ramping up production capacity. And wind is the only viable renewable that can deliver large amounts of installed capacity in the short term.
But just because you can doesn’t mean you should. As wind penetration increases, the pricing effects become more extreme, impacting the profitability of existing baseload and peaking power plant, albeit in different ways. Surges in wind power create ‘spill,’ unwanted power that sends spot market prices to zero, reducing revenues from existing plant and increasing the redundancy of more flexible plant. This might be good news for consumers but bad for investment in non-intermittent sources of power, presenting the risk of a decline in reserve capacity.
The article, The Unbearable Lightness of Wind, which first appeared in the February 1 edition of Platts Energy Economist, looks at the pricing effects of a high penetration of wind and the consequences for the supply of power from non-renewable resources. It also discusses possible means of amelioration.
Since writing this article, new reports and articles have come out shedding more light on the subject. One is a report by U.K. consultancy Redpoint Energy, which looks at the impact of a marine/wind renewables mix on output variability. While the report is limited by its original brief, it highlights the idea that a mix of renewables may overcome the inadequacies of each. I’d also emphasize the other obvious conclusion: that too high a dependence on any one renewable source imposes costs. The Redpoint report is critically assessed in the next edition of Energy Economist, out June 1.
A second recent article referring to the disconnection of wind farms in Spain appeared in the Spanish business daily Expansion. It said, “Due to the fall in demand, it has become necessary to disconnect the wind parks which already produce more electricity than the system can absorb.” No sources were cited. Wind parks are the first power generators to be disconnected when demand for electricity falls, because it takes them longer to stop production than other sources, such as nuclear plants, the report said.
If that is the case, then it suggests that wind power producers are turning off plant to support prices, or that companies with a broad portfolio are taking wind down first. It seems very strange to me — why “turn off” a wind farm that has zero fuel costs and is supported by a feed-in tariff? Surely wind output can be reduced quicker than nuclear. The article needs much further explanation, and perhaps others can throw more light on the subject. But it does illustrate the central economic problem discussed in the Unbearable Lightness of Wind – that high levels of wind power penetration have increasingly large pricing implications for wind power producers and the rest of the industry alike.