May 13, 2009
The Value of Wind – why more renewable energy means lower electricity bills
Adam Bruce, Chairman, British Wind Energy Association
There is a perception that increasing the deployment of renewable generation in the UK will increase the price of electricity for British consumers. However, the reality is the reverse: adding significant amounts of wind capacity to a country’s generation portfolio leads to lower overall generation costs, and to lower bills, while increasing energy security.
Wind is a free source of fuel. When the wind blows the UK’s electricity system has access to this free source and the power generated is automatically accepted onto the system. That electricity system is a combination of generation plants using different fuels and technologies, each with its own marginal cost. Operators bring plants on line in an ascending order of marginal cost and employ the same methodology when reducing output. In short, the most expensive plants, such as open cycle gas, are the last to be brought onto the system and the first to be shed.
When introduced wind displaces this “low merit” or “peaking” plant. This is the “merit order” effect, where wind reduces both the marginal and average cost of power. Recent studies in Germany have shown the consumer benefit of this effect, in that the reduction in domestic electricity prices brought about by this fossil fuel displacement exceeds the amount paid out by the consumer in support mechanisms for renewable generation.
When wind energy is available in significant quantities it causes the demand for fossil fuels to fall and if it continues to blow for a prolonged period, as frequently happens in northern Europe, the expected future market price of electricity also falls. This phenomenon was clearly seen in Spain over the early months of 2009 where prices paid for electricity on the spot market were reported to have dropped by over 10 per cent as production from wind plant increased relative to demand. A longer term study in Denmark has shown that between 2004 and 2007 the cost of power would have increased by up to 12 per cent if wind had not been available on the system. An American study this year has shown that if renewables provided 25 per cent of US electricity, it would lead to a 7 per cent reduction in consumer bills.
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Where wind production is increased, units burning fossil fuel will have their input price reduced because the inclusion of wind reduces demand for fossils. Thus there is a leverage effect on the value of each unit of electricity made from wind. It does not just have a very low marginal cost; it lowers the cost of every other unit of fossil fired electricity as well.
One of the greatest benefits of wind power is that it reduces our exposure to fuel price volatility. Energy security considerations generally focus on the threat of abrupt supply disruptions, such as Russia’s closure of its gas pipeline to the West. However there is another aspect of energy security: the risk of unexpected fossil fuel price increases. Energy security is reduced – and prices increased - when countries hold inefficient portfolios that are overexposed to fossil price risks. Diversifying a country’s generation portfolio by growing the supply of wind energy increases energy security and serves to lower the overall generation portfolio cost – again reducing electricity prices.
Opponents of renewable energy have been allowed to frame the debate around the economics of wind power by concentrating on its high capital cost, rather than its low and stable fuel cost, the benefits it brings in terms of lower energy market prices and its contribution to energy security. Maximising the opportunity to develop large-scale wind resources in the UK will have clear, long-term, sustainable benefits for our economy and for domestic and commercial electricity consumers. Wind energy means lower bills; it’s as simple as that.
business.timesonline.co.uk |
