Fossil fuel scores profits from wind -- Wind pushes prices down

When plenty of wind generated power is expected on Germany's electricity system, broad power market prices take a tumble the previous day. While this effect has often been observed on Germany's EEX electricity exchange, two recent studies have systematically quantified the impact of wind on market price. For every 1000 MW of wind and other renewables feeding into the system, electricity prices go down by EUR 0.55-1.89/MWh. The price reduction especially benefits large industrial power users.

At the EEX trading exchange, the price of electricity delivered for the traded period the next day is set by the power station with the highest variable costs (mainly fuel costs). The more electricity required, the higher the overall cost as more expensive generating capacity lower down the merit order is required online. With plenty of wind on the system, the most expensive power stations, probably gas plant, are pushed off the order list, with the price the next day set by a coal power station with lower variable cost.

"Interestingly, this effect of the renewable energy support law has so far been ignored in political discussions," say Sven Bode and Helmuth Groscurth of the Hamburg Institute of International Economics in their study, "The effect of the renewable energy law on the price of electricity."

In a second, indirect effect, wind or other renewables power displaces fossil-fired generation, allowing power station operators to accumulate unused CO2 emissions allowance certificates, which under the EU's emissions trading scheme are issued for free. The generators, however, can sell them on the emissions trading market. But Bode and Groscurth do not quantify any profit made by dirty generators from sales of extra CO2 certificates, nor do they quantify the increase in the costs of balancing power and network expansion caused by the presence of wind power on the system. Instead they concentrate on the direct price reduction brought about by renewable energies.

Looking at a scenario which assumes a large (elastic) response by customers to electricity price changes, they find that raising the deliveries of wind or other renewables by 1000 MW results in an average price cut of EUR 0.55/MWh. In a scenario where customer response to price change is less marked (inelastic), the fall in the wholesale price of power is EUR 0.61/MWh for every additional 1000 MW of renewable capacity feeding onto the system.

The authors point out that for most consumers, the electricity price reduction, seen across a 12 month period, only slightly compensates for the levy they are charged to cover Germany's subsidised wind power purchases. Vattenfall customers, for example, pay a levy of EUR 5.6/MWh. Heavy industrial consumers, however, come out winners. As large users of electricity they are deemed as being in need of protection from high electricity prices, so pay a significantly reduced renewable energy support levy of just EUR 0.5/MWh, which is less than they gain from the reduction in electricity exchange prices thanks to the presence of renewables.

Utility agreement

A separate study, "The influence of wind generation on spot market prices," undertaken by transmission system operator E.ON Netz together with Duisburg/Essen university, looks at prices at the EEX during September 2004-August 2005. It finds a more marked effect of wind power. For every 1000 MW of forecast wind power output, the spot market price fell on average by EUR 1.89/MWh. A forecasted wind generation of 4000 MW, say, delivers a spot price that is EUR 7.6/MWh lower than the average spot price on a day without wind generation. "Wind generation already has a tangible effect on prices at the EEX and this will grow as wind energy use in Germany and Europe increases," the authors conclude.

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