Wind power and electricity markets - Wind Power Integration: Connection and System Operational Aspects - page 252

targets is recycled pro rata to all certificate holders. The value of the certificates is
therefore enhanced, and they are currently (2013) valued at about £45/MWh. The
European emissions trading system has similar characteristics to the UK ROC
system, but requires all conventional generators to have a certificate for every tonne
of CO 2 emitted, with penalties for non-compliance. The emissions trading mechanism
internalises the external costs of conventional generation and helps make wind
generation more competitive.
One of the most popular mechanisms to support renewable generation is the
feed-in tariff. Essentially the wind farm is guaranteed a price per MWh of elec-
tricity for a period of time. The feed-in tariff is not a market-based mechanism, and
limits are placed on the volumes, with different prices for different technologies,
e.g. offshore wind will typically attract a higher price than onshore wind as the
technology is less mature and more expensive. A similar scheme is a competitive
tender where wind developers bid in a price they are willing to accept per MWh
over a defined period (e.g. 15 years). The lowest bids are accepted up to the volume
required and the contracts are issued. The alternative energy requirement (AER) in
Ireland is an example of this type of mechanism (DCMNR, 2005).
While the various support mechanisms do encourage and support wind power
in the market, they all have their strengths and weaknesses. From a market per-
spective they are all less than ideal. The best approach is to have wind compete in a
fair and open market where all costs are included.

7.5 Costs

The concept of causer pays is a commonly coined phrase when discussing costs in
an electricity market. The costs fall into a number of categories. There are the costs
of the physical networks (transmission and/or distribution) that are required to
harness the energy from the various sources. The network assets need to be paid
for, and individual generators are charged transmission use of system charges and
distribution use of system charges depending on where in the system they are
connected. Network charges can include a locational element that encourages
generation and/or load to locate or not locate in certain places. Such locational
signals will be driven by transmission losses and congestion. Losses can also be
included in locational prices (Keane and O'Malley, 2006). The other cost category
is associated with the provision of ancillary services such as reactive power and
reserve. Some of the wind turbine technologies create a need for reactive power,
but these can be self-provided and this is the approach that is being pursued through
grid codes (Appendix 2). Additional reserves will be needed for balancing for large
penetrations of wind power due to the prediction error. Self-provision of reserve is
generally not very efficient and is best done centrally. There will be a financial
overhead associated with the market, comprising transaction costs, market system
costs and the cost of regulation.
In some markets the system costs are socialised, i.e. added to the price of
electricity and passed through to the consumer. However, this is not good practice,