MOVING TO RENEWABLES: WIND POWER COSTS COULD BE PASSED ON IN
HIGHER ENERGY PRICES
Energy prices are likely to rise if the UK is to reach its renewable energy targets for
2020. That is one of the findings of new research by Professor Richard Green and Dr
Nicholas Vasilakos, presented at the Royal Economic Society’s 2011 annual
conference, which analyses the likely effects of changes to the UK energy industry if it
is to build the 30GW of wind power stations needed to meet the country’s targets.
The study shows that these new wind farms will also increase the need for generating
companies to build flexible power stations and will reduce demand for low-carbon
baseload solutions such as nuclear power. While this might not change electricity
wholesale prices, it will cause retail prices to rise if the low-carbon generators need
extra support to cover their costs.
The authors argue that the government’s plans for reforming the electricity market need
to ensure that investment in the flexible power stations remains attractive:
‘Most of the attention so far has been given to support for renewable and nuclear
generators, which are mostly inflexible. The current market arrangements may be
inadequate to support such a large amount of infrequently used plant.’
‘A capacity market, one of the options being considered by the government, would
reduce these risks.’
More…
Building a large number of wind farms to meet the UK’s targets for renewable energy
will have significant effects on the rest of the electricity industry. Generating companies
will need more flexible power stations, which may not run very often, and will have less
scope to build low-carbon baseload stations such as nuclear.
If they adjust the capacity that they own in this way, the pattern and level of electricity
wholesale prices may not change much in response to the shift towards renewable
energy – but retail prices will rise if the low-carbon generators need extra support to
cover their costs.
The government’s Electricity Market Reform process needs to ensure that investment in
the flexible power stations remains attractive – most of the attention so far has been
given to the support for (mostly inflexible) renewable and nuclear generators.
Professor Richard Green of the University of Birmingham and Dr Nicholas Vasilakos of
the University of East Anglia have modelled the output patterns that we might see if we
built 30 GW of wind power stations, the level needed to hit the UK’s renewable energy
target for 2020.
They matched 12 years of wind speed data from the British Atmospheric Data Centre
with the demand levels from the same days, again scaled up to forecast levels for 2020.
The highest demand that the other stations on the system might have to meet was
almost unchanged by the presence of the wind stations – there can be very little wind
on the coldest winter days.
Most of the time, of course, some or all of the wind stations will be running, and the
remaining demand for power will be lower. This means that the number of stations that
are needed, but not very often, will increase: compare the right-hand end of the two
lines in Figure 1 below.
Load-duration curves
(2020 with 30 GW wind)
GW
60
50
40
30
20
gross demand
10
demand net of wind
0
0
2000
4000
6000
8000
Hours per year
Figure 1: The impact of wind power on the demand for electricity
Green and Vasilakos modelled what would happen if capacity could perfectly adjust for
the new conditions and showed that generators would want to build more flexible Open
Cycle Gas Turbine stations, and fewer baseload stations such as nuclear, shown in
Figure 2.
Equilibrium capacity mix
GW
100
90
80
70
60
50
40
30
20
10
0
Wind
Open Cycle
Gas Turbine
Combined Cycle
Gas Turbine
Nuclear
no wind
wind
Figure 2: The impact of wind power on the desirable capacity mix (specific results
depend on the assumptions made, taken from a Redpoint study for DECC)
Because the capacity mix is expected to change if we build wind power, the pattern of
prices does not change very much, as shown in Figure 3. Each type of power station
has to earn enough from the market to cover its costs, unless it gets support from the
Renewables Obligation or some other scheme.
Price duration curves
£/MWh
200
150
wind
100
no wind
50
0
Hours per year
-50
0
2000
4000
6000
8000
Figure 3: Price duration curves for the base case (specific results depend on the
assumptions made, taken from a Redpoint study for DECC)
The key lesson for the Electricity Market Reform is that the UK will need more flexible
generators alongside the nuclear and renewable stations that are the main focus of
attention, and that investors need to believe that building them will be profitable.
The current market arrangements may be inadequate to support such a large amount
of infrequently used plant. A capacity market, one of the options being considered by
the government, would reduce these risks.
ENDS
‘The long-term impact of wind power on electricity prices and generating capacity’ by
Richard Green and Nicholas Vasilakos
The research was funded by the Engineering and Physical Sciences Research Council
and the researchers’ other industrial partners, via the Supergen Flexnet Consortium,
Grant Number EP/E04011X/1. The views expressed are the authors’ alone.
Contact:
Richard Green
Telephone: 0121 415 8216
Mobile: 07771 940977
Email: r.j.green@bham.ac.uk
Or University of Birmingham Press Office, Kate Chapple, 0121 414 2772