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Reserves of patience

The brief to our team was to find out the actual cost incurred by power systems for taking on board fluctuating deliveries of wind energy and then see if market structures are correctly pricing that cost. We were not so naive as to expect that today's new electricity trading exchanges were getting prices right. But we did expect the electric utility companies to be fully conversant with the volume, and thus cost, of any extra reserves they were scheduling for ensuring wind does not upset system security. However, countries with the largest volumes of wind power are those least able to say how it impacts their generation reserves.

The brief to the team picked to work on articles for this month's focus topic (pages 35-46) seemed straightforward enough: find out the actual cost incurred by power systems for taking on board fluctuating deliveries of wind energy and then see if market structures are correctly pricing that cost. Six weeks later we find ourselves not so much defeated as dumbfounded.

We were not so naive as to expect that today's new electricity trading exchanges were getting prices right. Controlling the cost of balancing supply and demand through the use of market forces is going to be a matter of trial and error. But we did expect the electric utility companies running our power systems to be fully conversant with the volume, and thus cost, of any extra reserves they were scheduling for ensuring wind does not upset system security. We also expected utility economists and engineers to be as anxious as we are about finding fixes for markets that work against the prime goal of keeping cost to the consumer down. More fool us.

The biggest surprise is that countries with the largest volumes of wind power are those least able to say how it impacts their generation reserves. In western Denmark, where wind provides 21% of power deliveries (page 41), the answer to our question was an unabashed, "We don't know." Utilities in Germany, which gets 4% of its electricity from wind, were just as vague, though admitted that wind's impact on spinning reserve is negligible. The vagueness suggests either a singular lack of interest in any extra cost that wind dumps on them, or is a strong indication that the cost is so small that it is not worth bothering about. Either way, the dire warnings of the dangers to system security of integrating wind seem to be wildly exaggerated.

On closer examination, their attitude is perhaps not so surprising. These are countries where governments have prioritised development of wind power above keeping a tight lid on cost. Utilities must buy and distribute wind production come what may; the incentive to focus on cost that a competitive market demands is not there. At the same time, however, the politicians have introduced new trading markets aimed at making cost a ruling parameter for power system control. That puts utilities between the devil and the deep blue sea.

Denmark's Eltra is not so much concerned with actual levels of reserve and their cost, as the financial punishment meted out by the NordPool power exchange for the utility's failure to deliver power that exactly matches a production schedule that the rules require be fixed up to 36 hours in advance. Wind gets the blame 70-80% of the time for Eltra's daily misses of the mark. German utilities, with lower penetration of wind power, have not reached that stage, but they greatly fear landing in the same predicament. Germany's four balancing markets close the gate for scheduling production even further ahead than in Denmark. No wonder the utilities are creating a fuss.

Among the scare tactics they adopt in Germany are misleading figures for wind's future penetration, based on treating each utility region as an isolated system instead of as part of the country's huge integrated network. That fluctuations from lots of wind power are nowhere near as great as system operators had at one time feared (Windpower Monthly, July 2001) seems to have passed Germany by. Its utilities are claiming they will need to schedule enormous reserves equal to half the country's future wind capacity (page 45). That's up to ten times more than any other country is planning.

What seems to be missing from the debate is the logical distinction we make between the actual cost of running power systems with wind and the failure of markets to produce prices that reflect that cost. In other words, the difference between physical barriers and regulatory barriers. For Denmark, with its green power goals, to structure a market which makes wind both expensive and difficult to manage is a failure of decision making from top to toe.

Not fanciful theory

At this point our reserves of patience might have run out were it not for Britain and America (pages 39 & 46). In a variety of ways their power system regulators are pulling down the barriers so prevalent in mainland Europe. Evidence has persuaded them that even large percentages of wind plant are not requiring more than incremental increases in existing reserves (page 35) -- and that markets should reflect that fact. That only modest reserves are needed is not fanciful theory, but the application of standard utility practice.

As a champion of competitive markets for supplying most wind for least cost, it is with a certain satisfaction that this magazine notes that where an Anglo Saxon belief in market forces rules, there is much more focus on designing markets that do not inflate prices. It's a question of attitude. While Eltra talks about "displacing Norwegian hydro with excess wind" at a loss, the BPA in Northwest America offers a service for wind to be stored in its hydro system for delivery of a fixed volume of electricity a week later (page 23).

Needed now is some thinking outside the box by power engineers, who must stop playing scare-tactic politics and help politicians and regulators lower cost by boosting market efficiency. The market, remember, is a poor master, but a great slave. Efficient markets for wind power are efficient markets for all power.

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