GWEC: Time to ditch cost focus

Comparing the different forms of generation based purely on price is outdated and is working against the energy transition.

"Race to the botton" of narrow focus on costs puts the sustainability of the wind industry at risk, GWEC warns (pic: AEE)
"Race to the botton" of narrow focus on costs puts the sustainability of the wind industry at risk, GWEC warns (pic: AEE)

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In its latest annual report, the Global Wind Energy Council (GWEC) argues the "race to the bottom" of the levelised cost of energy (LCoE) — precipitated by a system still dependent on fossil fuels — is challenging the sustainability of the wind-industry supply chain and companies.

The current approach has already claimed several smaller suppliers, and even majors such as Senvion. Other OEMs have had to make drastic changes to their operations in recent months.

GWEC wants to shift the focus and create a market setup that supports those generators that provide the greatest value to the system. This would create a level playing field for renewables against incumbents, the report argues.

Generators should be judged on "the net sum of positive and negative impacts of all energy sources on society as a whole". While renewables can be expensive to integrate, this should be offset by the significant reduction in emissions from conventional generation, the report states (see graphic).

"This approach reflects society’s need for clean generation in line with national and international policy targets. At the same time, it compels governments to resist focusing on integration and grid infrastructure costs without weighing up the crucial system benefits of additional wind-power generation.

"The current market design fails to fairly value renewable energy," the report complains. Now that renewables are the cheapest form of new electricity generation in practically every market, it is time to move on from focusing on ever-lower costs, GWEC argues.

The fall in prices was accelerated by the introduction of auction systems that award contracts to the lowest bidder without much consideration for other factors. This has resulted in many wind projects, both onshore and offshore, being selected on a "subsidy-free" basis. GWEC — and WindEurope — previously called this system unsustainable.

Wholesale market too volatile

Indeed, "GWEC does not support moves to ‘subsidy-free’ auctioning or a pure merchant environment based on existing wholesale markets," the global body stresses in its annual report.

Subsidy-free projects are open to the volatile wholesale market. This increases the cost of capital, as investors try to hedge their bets. Instead, they prefer long-term pricing stability and visibility.

"Wholesale pricing mechanisms were designed around fossil-fuel generation with high marginal costs, and they don’t adequately or fairly assess the value of renewable energy that comes with near-zero dispatch costs," Joyce Lee, GWEC’s policy and operations director, said in a recent webinar.   

"This is going to become more problematic as markets seek to ramp down support schemes for renewables, as that makes generators for wind power even more reliant on wholesale prices. As a result, wind’s cost competitiveness in wholesale markets is becoming an obstacle to new investment.

"The market should instead be emphasising system value. The net sum of positive factors such as social value, low emissions and high market value, as well as negative factors like dispatch costs, grid enhancements, and the cost of flexibility solutions depending on the time and location of generation," Lee added.

GWEC said energy pricing systems should account for fossil fuels’ "economic burden".

"That’s important to adequately disincentivise new investment and demand in existing or new fossil-fuel generation," Lee explained.

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