Denmark

Denmark

Wind drives market prices down in Scandinavia -- Consumers savings of up to EUR 100 million a year set to keep growing

Electricity consumers in Scandinavia are being saved millions of euro a year thanks to Danish wind power production. In 2005 alone, consumers in the west of Denmark saved EUR 60-EUR 100 million as result of wind power replacing supplies from conventional gas and coal plant, pushing electricity market prices to rock bottom.

That spot prices are liable to drop in the west of Denmark on windy days has been known by observers of NordPool, the power exchange for Denmark, Sweden and Norway, for some time. But the full extent of the savings was revealed for the first time last month at the annual conference of the Danish Wind Energy Society, a group of researchers and experts.

The conference was presented with early results from a study conducted by Poul Erik Morthorst from the Danish national laboratory at Risø and HIH-Vind at the Birk Innovation and Research Centre in west Denmark. The study looks specifically at the effect on market prices of the large concentration of wind turbines in western Denmark, which at times meet the region's entire electricity demand.

For eight out of 12 months last year, electricity prices were lower in the windy west of Denmark than in the rest of the NordPool region. In the two windiest months, November and December, prices were 50% lower thanks to the contribution from wind power.

Under pressure

The effect of wind production on consumer prices can be clearly seen by juxta-posing NordPool's prices for the west of Denmark with the regional weather forecast. The windier the forecast, the more wind power expected on the market, and the lower the prices. A drop in the price to consumers of EUR 0.13/MWh is not unusual when the wind picks up.

Market prices come under pressure when the 2400 MW of wind plant in the west of Denmark supply more power than the region needs. The over-supply is exacerbated by lack of transmission capacity to Germany in the south and to Norway in the north -- and there is no cable link between the lightly populated west and the populated east, where the capital city of Copenhagen is located. If there were no transmission bottlenecks, the downward pressure on spot prices would apply far beyond the west of Denmark -- spreading the price benefits of wind power to consumers in the whole of the north European mainland.

The impact of wind power production on spot market prices has been growing year by year as increasing numbers of older turbines enter the open power market. Operators are forced to trade production on the market once subsidies dry up after the first ten years of operation. Savings for consumers in 2005 increased threefold on the EUR 19-32 million saved in 2004, according to Morthorst. On average, consumers in west Denmark would have paid 7-13% more for their electricity through 2005 if there was no wind power, compared with 3-5% more in 2004.

While that may be good news for consumers, it is bad news for wind turbine owners, points out the Danish turbine owners association. "It is not a comfortable situation for wind turbine owners who sell their output at market prices to discover that the more their turbines produce, the less they receive for the power. But for the ordinary consumer it's a nice thing," states the association in its magazine for members, Naturlig Energi. "This unexpected extra benefit from wind power supply can be added to the 20,000 jobs created by the wind industry, the DKK 20 billion added to the trade balance from wind turbine exports and the 20% pollution free electricity that electricity consumers, taxpayers and society enjoy."

Compensation

The association concedes that the extra cost of wind power -- in the form of premium purchase prices for the first years of operation -- cost all electricity consumers in Denmark an extra DKK 0.055/kWh (EUR 0.007/kWh) in 2004.

Morthorst stresses that it is early days for his research into the influence of wind power on market prices in Scandinavia and it is too soon to draw final conclusions. Adjustments to his findings may well be made as research continues. A number of factors influencing electricity prices have still to be fine tuned, among them underlying trends in spot market prices, variations in demand, seasonal variations in Scandinavian hydro power supplies and other statistical "noise," such as the possible abuse of market power by the major utility players, currently being investigated.

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