Environmental Engineering Reference
In-Depth Information
plotted against wind power for all demands within 1.0% of 2,500 MW in 2012
(SEMO, 2013).
The points are scattered, due probably to variations in the spot price of gas with
which the wind generation is competing. However, the trend of decreasing SMP as
wind generation increases is clear. The best-fit linear approximation is shown, and
corresponds to a reduction of 0.00415/MWh for each MW of wind generation.
The depressed wholesale price benefits the consumer, but also reduces the wind
sector's income and indeed profit margins for all generators.
The impact of wind on price is readily estimated. Average wind generation in
the ESB system in 2012 was 470 MW. The saving is thus 470 0.00415/MWh or
1.95/MWh. The cost of regulating reserve for wind power in Britain was esti-
mated to be £3 per MWh in 2003 (House of Lords S&T Committee, 2004). The
corresponding figure for Ireland in 2012 is assumed here to be 5 per MWh of wind
energy. With wind energy providing 15.4% of ESB demand in 2012, the cost of
wind power regulation spread over the system would have been in the region of
0.154 5/MWh or 0.77/MWh. The net electricity price saving due to wind
energy is therefore 1.18/MWh.
It is useful to compare the wind energy saving with the cost of support. The
support mechanism is through a feed-in tariff (REFIT), 68 in 2012. The feed-in
tariff is in turn financed through a public service obligation (PSO) levied on con-
sumers. This was 35.78M for the year until 30 September 2012, then 47.45M for
the year from 1 October 2012. The PSO for calendar year 2012 was therefore
38.70M. This was spread over an energy demand of 26.81M MWh, giving a
support cost of 1.44/MWh. Taken together with the benefit above, it would appear
that the cost of wind energy to the consumer is around 26c/MWh or 0.026c/kWh -
about 0.15% of the final retail price.
7.7
Investment and risk
Investors in wind power or any other form of generation will expect a return on
their investment through various market mechanisms. Investors will expect higher
returns on their investment if the risks are higher. There are significant risks in
electricity markets. It is a capital-intensive business and the assets are difficult to
move, e.g. it is not viable to move wind turbines once they are installed. The
volatility in the energy price can be a significant deterrent to investment. It can be
hedged between the generation and supply businesses, and this has encouraged a
level of vertical integration and/or the use of financial instruments. The simplest
and most useful financial instrument is a contract for difference, where generators
and suppliers agree a long-term price for energy regardless of the underlying short-
term price (Lowrey, 1997). One of the biggest risks in an electricity market is
regulatory risk. Regulators can and do have immense influence over the market,
and any perceived weaknesses in the regulatory framework or regulatory ability
will discourage investment.
Fostering true competition in an electricity market is not a trivial task. How-
ever, trying to achieve it with a dominant player is nearly impossible. Market power
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