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GRAB YOUR LIFT RAFTS

Market deregulation--with power pools the latest in fashionable accessories--is a topic wind energy has to get to grips with. Like horoscopes, power pools are surrounded in mystique, but more than a little over-hyped. They cannot reflect all that is claimed for them. Not surprisingly, buyers and sellers are a bit wary of these shark-infested waters and most generators have used seized life rafts in the form of direct contracts for sales of power. Nobody has solved the problem of integrating wind energy into a pool. Generally wind has "must run" status, but no power plant project could be financed on the basis of uncertain power pool prices. Renewable generators need to grab their personal life rafts. Deregulation, not power pools, is the key issue when weighing up wind's future market. In general, it has been beneficial.

Deregulation of the business of electricity supply -- with power pools the latest in fashionable accessories -- has been an inescapable subject of news stories in Windpower Monthly for the past year or so. Like it or not, as part of the electricity business, wind energy has to get to grips with it all. The aim of deregulation is the Nirvana of totally open competition in electricity markets. Power pools are seen as stepping stones to this dream. Rather like horoscopes, they are trendy and surrounded in mystique, but on closer examination perhaps more than a little over-hyped. The jargon that goes with them is bewildering, contributing to their mystique and, cynics would say, masking the fact that few understand their function or purpose. There is no need to feel intimidated, though. A recent report from a power pool regulatory authority included three different definitions of pool price -- and none was correct.

The concept behind today's power pools has been around for many years. What is unrealistic about present day obsessions with their workings is that power pools simply cannot reflect all that is claimed for them. Once upon a time, before the power business was freed from government control, a tariff structure typically filled a single sheet of paper. It included fixed charges, capacity charges related to customer demand at peak periods, and energy charges related to the time of day and year. Everyone knew where they stood. What's more, the utility scheduled plant to meet demands on the basis of "merit order," tabulating the marginal generating cost of each power unit and ensuring that the cheapest were called to generate first, the dearest last.

With deregulation, swarms of politicians, lawyers and accountants arrived on the scene and before long a simple system had become a deal more complex. Using the buzzword "real time pricing" they tried to use merit order prices as a basis for establishing the "market price" of electricity in a power pool. This price was supposed to be sufficient to beguile new generators into plunging in. Even in theory the concept was a bit suspect; in practice, it proved almost impossible. One of the main reasons is because prices bid into the pool by generators do not need to reflect actual costs; even if they did, there is no reason why historic costs should equal present-day generating costs. Pool prices are arbitrary. Nowhere was this illustrated better than in the UK recently when annual average price rose by 50% during a period when coal prices fell by about 30%. The UK pool does no better with its other aim -- the reimbursement of generators' fixed costs; suffice to note that explanations of its workings run to at least eight pages.

Not surprisingly, buyers and sellers are a bit wary of these shark-infested waters and, in practice, only a small proportion of electricity is genuinely traded via the much-hyped UK pool. Possibly as a result of the complexities and uncertainties in the system, electricity prices rose in real terms in the UK after the pool was formed, for the first time in many years. Most generators have chosen to secure direct contracts, either with utilities, or with large industrial/commercial consumers, either built around standard two-part tariffs or around pool related prices.

Nobody has solved the problem of integrating wind energy into a power pool. Generally wind, like nuclear has "must run" status. This recognises the need to operate whenever possible. But no power plant project -- whether conventional or renewable -- could be financed on the basis of power pool prices. The payments are too uncertain. Moreover, even if pool prices did have a relationship to "market prices" (at the busbars of large thermal plant), that is the wrong indicator for renewable energy supplies, which, being injected at local level, do not have to suffer long and costly transmission.

So should renewable generators stand aside from power pools and decline to jump in? Probably not. It must be remembered that power pools, like swimming pools, are a status symbol -- every privatised electricity system must have one. They might even be made to work one day. Meantime, frantic pool swimmers are busy grabbing personal life rafts. Both articles on deregulation in this issue (pages 36-40) are crammed with implicit or explicit references to special alternative arrangements for 57 varieties of plant, including renewables. The motto would seem to be: never mind the women and children. But remember, there is a poolside attendant -- a regulatory body -- whose job is to make sure the splashing does not get out of hand.

Deregulation, not power pools, is the key issue when weighing up wind's future market. In general, it has been beneficial to renewables. Subject to safeguards, anyone can sell electricity to anyone in a market driven system and the modest support mechanisms for renewables have worked wonders in improving performance and costs, especially where competition has been fostered. Sale of "green energy" at a premium price, also fostered by deregulation, is now a reality, not a theory, in the US, Denmark, the Netherlands, Switzerland and the UK, to name just some of the markets.

There is no need, therefore, to be daunted by power pools. They still ensure power systems are operated efficiently, just as the merit orders always did. Ignore the complex mathematical arguments as to what the prices really represent -- remember they are arbitrary. We must concentrate on securing the best deals for renewables, just as all the other power plants are doing, and continue to extol their virtues in contributing to a cleaner planet.

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