January 27, 2016
U.K.

Windfarms paid double the market price to cut power

By Jillian Ambrose | Telegraph | uk.finance.yahoo.com

The grid operator is now taking action to avoid future wind power waste

Wind farms were paid more than double the market price to stop generating electricity this week, despite the country facing an increased risk of blackouts this winter.

Strong wind conditions in the early hours of Monday and Tuesday morning threatened to overwhelm the grid with more subsidised power than needed, forcing National Grid (LSE: NG.L – news) to offer lucrative payouts of between £58 and £115 per MWh to turn the turbines off.

The payouts stand well above the current market rate of around £45/MWh to compensate wind farms for the subsidies they might otherwise have earned.

National Grid balances the country’ electricity needs by paying generators to cut or ramp up power supplies to match demand. It (Other OTC: ITGL – news) is forced to give wind farms so-called “constraint payments” to turn off when their output surges when consumers need electricity the least.

But market analysts say that payments to reduce wind power are becoming increasingly common as the number of turbines grows.

Cornwall Energy analyst Thomas Edwards said: “Payments in this range now happen fairly often over mornings when there is high wind, low demand and coal and gas plant begin to ramp up.”

One power market participant said National Grid was effectively “paying the cost of a poor system and network design”.

As renewable energy plays a greater role in the UK generation mix, National Grid faces a tougher task to match consistent demand trends with variable wind levels.

Last November, low wind speeds contributed to the first power supply crunch alert in almost a decade.

A National Grid spokesman said: “We are incentivised to make sure we [keep the system balanced] in the most cost effective way possible and sometimes using constraints like this is cheaper than the alternative.”

But under new plans, National Grid hopes to reduce wind power waste by offering companies an incentive to use strong, off-peak renewable surges to run their operations.

The operator is trialling a scheme to make use of surging levels of renewable output by offering contracts to businesses which are able to turn up their power use when demand is otherwise low.

National Grid said it has had strong early interest and could begin to offer the ‘turn up’ contracts by next year. Successful firms which make use of windy weather could earn enough through the contract to make their off-peak energy use free.

Water companies, for example, could agree ahead of time to set their energy intensive pumping stations to run in the middle of the night if wind speeds were forecast to surge, and effectively receive that power for free.

Eventually, National Grid hopes that households could pay cheaper energy bills for using electricity when wind power is strong or the sun is shining.

National Grid already offers companies the chance to earn income by reducing demand when supplies are tight to avoid blackouts.

But the new plans could help to avoid spiralling constraint payment costs to wind turbine operators, while at the same time increasing the UK’s renewable energy use.

By 2030, National Grid predicts that most of its balancing costs will be paid to consumers, as they adjust their usage.

Constraint payments were also paid to coal and gas plants this week, but at significantly lower prices, below the market rate. Thermal generation needs less compensation from National Grid because the plants save money on the fuel they don’t burn.

URL to article:  https://www.wind-watch.org/news/2016/01/27/windfarms-paid-double-the-market-price-to-cut-power/