Policy Analysis
Coping with large amounts
of wind power
– Institutional challenges and Sino-Danish cooperation
Anders Højgaard Kristensen, DANISH ENERGY AGENCY
Introduction
Renewable energy grows rapidly in China.
Many obstacles have been overcome while
others persist. Today the grid connection issue is
among the most challenging. Both institutional
and technical barriers exist. But the institutional
challenges appear to be the hardest to overcome.
CNREC cooperates with the DEA in the
framework of the RED programme. During the
recent months information on development of
the Danish electricity system, the Nordic power
market and management of grid integration has
been exchanged.
Denmark and the other Nordic countries have
undergone a transition from full price and
monopoly regulation to unbundled activities
and a market based pricing for most generation.
There are many similarities to the indented
development in the regulation of the Chinese
power market.
20 China Renewable Energy
Policy Analysis
Development of the regulatory
regime for wind turbines in
Denmark
A big institutional reform of the Danish
electricity market took place 13 years ago in
1999. It was partly initiated by requirements
from the European Union demanding power
generation and trade to be separated (unbundled)
from monopoly activities such as transmission
and distribution and system operation. Apart
from the EU requirements it also was inspired
by the electricity market reform in England &
Wales in 1989, as well as by widely held beliefs
that increased competition would raise efficiency
of the power sector to the benefit of consumers.
Both the development in the UK and later in the
entire EU were driven by the general opinion
that due to lack of immediate price signals
investments in power generation in the old
regime was higher than development in demand
required.
By the time of implementation of the electricity
market reform there were also doubts. One
common claim was that the traditional vertical
integration facilitated a high level of security of
supply and possibility of an overall economic
optimization that were likely to exceed the
efficiency increases resulting from competition in
generation and sales. Another claim was that the
major power companies were large enough to be
able to exercise market power and thus prevent
much of the potential gains of competition to be
realized.
Today most stakeholders recognize that
the Nordic electricity market has improved
economic efficiency in the generation sector and
despite higher price volatility for costumers and
a more complex institutional setup, introduction
of the market model has added one of the
most important institutional measures to the
integration of wind into the power market.
Before the regulatory reform the Danish power
market – though much smaller – had a lot of
similarities to the Chinese power market. As
an example there were only two significant
producers also responsible for transmission
and system operation and load dispatch was
carried out by these companies dominant in
the generation sector. Further there was no free
choice of supplier for consumers. Before the
reform economic regulation stipulated that tariffs
could cover expenses only, it was changed with
removal of economic regulation on generation.
This reform gave equal opportunities to
generation no matter technology.
In the early phase of the wind turbine era, which
was 35 years ago in Denmark, there were a lot
of challenges to be connected to the grid. After
some years (in 1984) government intervened and
issued regulation which imposed an obligation to
grid owners to connect as well as defined the cost
sharing. Grid owners decide the voltage level for
connection, they have the obligation to expand
the grid to the new turbines and reinforce their
grid if necessary. On the other hand owners of
the new turbines have to pay for the connection
equipment to the point of connection. After this
political intervention grid connection has not
been a serious issue. The regulation remains in
force almost unchanged.
Nordic Power Market
Before the national regulatory reform another
important development took place. In the early
1990’ies Norwegians initiated a Nordic regional
electricity trading exchange called NordPool.
Denmark joined in the second part of the
1990’ies. It consists of several trading platforms.
The spot market and the intra-day market ease
the integration of wind power.
Generators and traders offer electricity for sale.
Owners of wind turbines base their offers on
meteorological forecasting which will be more
and more precise the closer you come to real
time.
Market trading reduces significantly the need for
China Renewable Energy 21
Policy Analysis
physical reserves and balancing capacity.
In reality the historical load dispatch is abolished
and replaced by a price equilibrium from
the trading platform where output from all
generation technologies are mixed up and the
system operator balance the system according to
trading curves.
Before the market reforms in the 1990’ies the
structure and way of operation of the Danish
power system looked very similar to the present
Chinese setup. (However, there were also some
differences. E.g. payment for generation from
coal fired power plants was not directly regulated
as is the case in China today)
Integration of Wind
The share of wind generation in Denmark was
28% compared to domestic demand in 2011, a
big increase from 22% the year before, see graph
below for the historic development
The share is foreseen to pass the 30% in 2012
or 2013 due to continued connection of wind
turbines. A political agreement concluded in
Parliament in March this year contains also the
support regime for various RES technologies
and stipulates that the 50% share of wind will be
reached by 2020.
This high share has been possible thanks to
strong interconnectors, increasing flexibility in
other generation output and not least grid and
system operators have had many years to adjust
to this type of generation.
Challenges with wind integration
in China
Construct ruction of wind turbines in China
has been tremendous in recent years. During a
couple of years capacity doubled year-by-year.
According to CWEA，by end of 2011 installed
capacity was 62.36GW.
Wind resources are best in Inner Mongolia and
there is thus a concentration of turbine capacity
in this region. It’s been a huge challenge to
connect the turbines to the grid as fast as they
are constructed. Grid companies are legally
obliged to connect new wind turbines to grid,
but according to CWEA many of the regions 150
windfarms operate at low utilization rates. Due
to low utilization many investors face according
to CWEC economic losses. Again according to
CWEC output from wind turbines in China could
have been 10 TWh higher in 2011 if there were
no restrictions such as delayed grid connection
and generation curtailments.
Historically the large coal fires power plants
have included in their permission a right to
operate equivalent to a minimum number of
full-load hours per year. The payment received
for the power production is fixed by NDRC.
Therefore owners of coal fired power plants have
no incentives to reduce output to make room for
wind power in periods with strong winds and
since they are operating at full load most of the
time they are not able to increase generation in
periods with low winds.
Another important issue is that the regional
transmission grids are operated autonomously.
Some interconnections exist, but since pricing
of exchanged electricity is not dynamic, interconnectors are only to a limited extent used for
22 China Renewable Energy
Policy Analysis
wind power integration. There are
some interconnectors between some
of the regional grids, which can prove
valuable for wind integration if trading
procedures are arranged according to
the new needs. New expensive Direct
Current long distance lines are not
always the most cost efficient measure
for grid integration.
Experience from the
Danish system with
integration of wind:
Below is listed the most relevant
Danish experience with integration of
wind:
- T h e m u l t i n a t i o n a l N o rd P o o l
trading platform has proved to
be a cost efficient tool to cope
with large amounts of wind. It
significantly reduce the need for
national reserve capacity
- Shot trading lead times up to one
hour before time of generation
reduce the need for balancing
since one-hour forecasts are rather
precise.
- T h e d y n a m i c m a r k e t p r i c e
sends incentives to fossil based
generation to respond on the price
signals. At strong winds there is
incentive to reduce output; at low
winds there is incentive to increase
output from other generation.
- D y n a m i c m a r k e t p r i c e s g i v e
positive business cases to invest
in refurbishment of existing power
plants to enable higher flexibility
i.e. operation at low output.
agreement stipulates 50% wind in
2020. Going from 30 % to 50 % will
probably also require flexibility in
domestic demand. Many resources
are presently used to develop and test
ways to increase flexibility and price
elasticity in domestic demand.
- Danish Grid code requires that
c o a l f i re d p o w e r p l a n t s c a n
regulate down to no more than
35% of rated output (Pmin). Today
the typical Pmin at modern coal
fired power plants in Denmark is
around 10% and with adjustments
to flame profiles in the boiler,
operation of coal mills etc. Pmin is
now seen as low as 4-5% of Pmax
Conclusion
- I n t e r c o n n e c t i o n b e t w e e n
national transmission systems in
neighbouring countries makes
room for much more wind (in china
the equivalent is interconnection
between the regional transmission
systems). Larger systems are
able to absorb more fluctuating
generation without the need for
investment in expensive dedicated
long transmission lines with low
load factors.
Many of these measures applied in a
Scandinavian context will probably
also be relevant in a Chinese context
to ease flexibility of other generation,
to apply market principles for cost
efficient regulation and balancing
and thirdly to use interaction between
regional transmission grids.
With this set-up Denmark is able to
cope with 28% wind on an annual
b a s i s ( 2 0 11 ) w i t h t h e 3 0 % i n
immediate sight. A recent political
Integration of large amounts of
wind is a serious challenge. Apart
from technical issues the regulatory
constraints are very important to
remove. The Danish example – though
very small in comparison – shows
that 30% integration is possible. This
article lists some of the most important
regulatory measures.
Anders Kristensen, Policy adviser
of Danish Energy Agency with 18
years experience from regulation
of the D anis h electricity s e c t o r
and from cooperation with energy
administrations in transitional and
emerging economies globally.
China Renewable Energy 23