Defining market price

On rare occasions wind projects have been built which emulate some gas projects and operate as "merchant plant," taking pot luck on the revenue stream from a "pool" or electricity trading market to sustain them. There are examples in Ireland and Canada. It is a risky approach as revenues may well fluctuate. Such arrangements are not easily bankable and so wind developers seek long term contracts with power retailers.

Deals with retailers which value wind on the basis of projections of marginal fuel costs are quite common, but contract prices which implicitly take into account the "capacity credit" of wind are rarer. Even so, wind turbines are turning which deliver power to the grid in price contracts that purchasers have been happy to sign -- often because they were specifically seeking green power and were prepared to pay a premium for it.

In theory, merchant wind power and power purchase contracts without subsidy should provide evidence of the "market price" that wind power generators need to aim for. In practice, there are almost as many variations on the definition of "market price" as there are of support mechanisms. Arguably the fairest way of comparing wind prices with those of thermal generation is on the basis of total costs. Some American Public Utility Commissions work on this basis which results in a "target" price for wind of around $0.03-0.04/kWh -- a price which could rise if last month's bump in gas prices continues to grow. In most places, however, wind is valued at a "pool" or "market" price, which may or may not reflect the full costs of generating the power being made available.

Some pools attempt to build in capacity payments, others do not. Most aim to reflect the marginal price of generation which, if coal is the principal fuel, is likely to be around $0.02/kWh. In practice, prices vary widely. In 2000 in Australia, for example, the average pool price in New South Wales and Victoria was $0.02/kWh, but in South Australia was $0.035/kWh.

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