Supporting wind: European examples and problems
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Supporting wind: European examples and problems
David NewberyUSAEE/IAEE North American Conference Plenary:Developments in Electricity Generation and Distribution
Anchorage, Alaska, 31st July 2013http://www.eprg.group.cam.ac.uk
Imperial CollegeLondon
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22D Newbery 2013 2
Outline
• Why support wind?• How is wind supported and financed?• Efficient market design vs reality• Lessons from the UK• Towards a better support system
Imperial CollegeLondon
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33D Newbery 2013 3
Logic of 20-20-20 Directive• Supports RES deployment to drive down costs
– induces investment => learning-by-doing• Solution to equitable EU burden sharing
=> all countries contribute to public good of learning• Learning comes from:
– design (cost, reliability, controllability, etc) – production, installation, siting/planning, grid
integration
but not from operation (provided reliable)
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D Newbery
Learning justifies Renewables Directive
Costs after doubling relative toinitial value
Source: IEA
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1 5
Start of ETS
Learning curves for generation technologies
Source: N. Nakicenovic, A. Grübler, and A. McDonald, eds., Global Energy Perspectives (CUP, 1998).
2010 price$2,000/kWp
=$(1990)1,220
39GW 2010Right measure of LbD driver
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66D Newbery 2013
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Renewables support replaces R&DUK Electricity R&D intensity
0.0%
0.5%
1.0%
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perc
ent e
lect
rici
ty r
even
ue
ROCs
other power
hydrogen and fuel cell
nuclear fission and fusion
Renewables
fossil fuels
Total ESI R&D (estimate)
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77D Newbery 2013 7
Characteristics of wind• Low capacity factor, very site specific
= 25% on-shore, 36% off-shore in GB=> potentially considerable site rent
• High variability– requires considerable flexible dispatchable reserves– creates new demands for System Operator
• Low predictability day-ahead– hard to contract ahead, risk of imbalance
Support design needs to address these
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88D Newbery Cranfield 2012 8
Considerable locational variation
Source Renewable Energy Foundation
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Average monthly capacity factor GB on-shore wind, 1994-2005 wind data
0%
10%
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perc
enta
ge
199419992004199820001997av 1994-2005200319962001200520021995
Source: Green and Vasilakos (2010)
Seasonal capacity factors
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Source: Green and Vasilakos (2010)
Hourly average wind and total demand
0%
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Hours ending
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or %
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Dem
and,
MW
Jan wind CF LHSMay wind CF LHSAug wind CFJan demandMay demand
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1111D Newbery 2013 11
Supporting wind• Market failures:
– CO2 under-priced– learning benefits not valued– risks higher than for conventional generation
• Pricing CO2 problematic - raises energy prices=> Britain has adopted Carbon Price Floor, others might prefer CO2
intensity target or RE target• Identify benefits from building and operation
=> availability subsidy + average (?) value of energy?• Reduce risks through contract design
Object is to deliver benefits at least system cost
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Carbon prices have crashed
Source: EEX
EUA price October 2004-March 2013
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Eur
o/t C
O2
OTC Index First Period
Second period Dec 2008
Second period next Dec
start of ETS
Second period
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1313D Newbery 2013 13
UK’s Carbon Price Floor - in Budget of 3/11
Source: EEX and DECC Consultation
As at 1 Jun 2011
to £70/t by 2030
Corrective tax
EUA price second period and CPF £(2012)/tonne
£0
£5
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£(20
12)/t
onne
CO
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second period priceCarbon Price Floor
Forward prices
Corrective tax
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UK price movements: 2007 to 2009 in €
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€/M
Whe
Electricity forward 2010 (€/MWh)Gas cost forward (2010) + EUACoal cost forward (2010) + EUAEUA price in €/tCO2
Gas and coal-fired generation costs move in line with electricity prices
Fossil plant naturally hedged
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1515D Newbery 2013 15
Contracts for wind• Variety of Feed-in-tariff (FiT)s:
– FiT, Premium FiT (pFiT), Contract-for-difference – need to address risk, location, support
• Germany, Spain, Denmark adopted FiT– transfers all risk to TSO, poor locational signals– rapid roll-out, Germany extracts wind rent
• UK 3 models: auctions, ROC pFiT, CfD– locational transmission charges, single GB price
How do they compare?
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17D Newbery 2013 17
CCC’09 UK 2020 target is 27,000 MW
Installed wind capacity in MW
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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UK’s target looks feasible at DEroll-out rate
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1818D Newbery 2013 18
UK experience• RE auctions drove down prices
– but no penalty for non-delivery => overoptimism=> decreasing proportion actually delivered
• Renewable obligation certificates (ROCs) – pay premium on wholesale price & sell to retailers
• no rent extraction, investment concentrated in Scotland
=> risky , benefits incumbent vertical gentailers=> low roll-out despite excellent wind
• Electricity Market Reform proposes CfDs– but requires windfarms to sell in illiquid wholesale market– removes wholesale price risk but not balancing risk
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2020D Newbery 2013 20
Towards a better system• System Operator to contract for wind
– ideally through tender auction• offer different support profiles, tenors, indexed or not
– select least total cost (transmission, balancing, CO2)– or secure sites first and then auction=> extracts unnecessary rent => least consumer cost
• Agree with EU on where learning benefits lie– Reliable capacity? => pay for availability not MWh
• avoids negative prices, avoids distorting location
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E: 2,000 hrs/yr
N: 2,500 hrs/yr
C: £50/MWh
£49/MWh=>£98k/MW/yr=>£198k + ROC
P1 £35/MWh(after new T) =>£87.5k/MW/yr =>£212.5k + ROC
T cost£15/MWh
ROC = £50/MWh
With ROCs wind farm inefficiently locates at N
Pay wind for availability + average spot price => efficient E
Location choices under LMP and spot pricing for wind
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2222D Newbery 2013 22
Conclusions• Wind suffers market failures - CO2, risk and learning• These can be separately addressed with good contracts• learning - club good that needs collective agreement
– on what it delivers and how to induce that efficiently• Most RE support is poorly designed as hard to
agree on club goods and prone to lobbying– fails to recognise system costs: location, balancing– fails to extract rent to reduce support cost
All of these concerns are amplified off-shore
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Supporting wind: European examples and problems
David NewberyUSAEE/IAEE North American Conference Plenary:Developments in Electricity Generation and Distribution
Anchorage, Alaska, 31st July 2013http://www.eprg.group.cam.ac.uk
Imperial CollegeLondon