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Clean Power Crowd in front of wind turbine

Published on March 5th, 2014 | by Giles Parkinson

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Wind Energy Reduces Electricity Prices During Heat Waves

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March 5th, 2014 by  

Originally published on RenewEconomy.

Attempts by the fossil fuel lobby to downplay the impact of wind generation during the recent heatwaves in southern Australia has been contradicted by a new study, and by recognition from one of the biggest gas producers that low prices in the recent heat wave had caused it to write down the value of some of its assets.

Crowd in front of wind turbine.
Image Credit: Hepburn Wind on Flickr.

There was a large campaign after the recent heatwaves in Victoria and South Australia condemning the role of renewables in meeting demand. Several studies, here and here, show that solar had a big impact on reducing the level of demand, and prices, and a new study by Sinclair Knight Merz suggests that wind energy did the same.

The new study, commissioned by New Zealand-based renewable power giant Meridian and its green energy retailer PowerShop, newly established in Australia, suggests that wind contributed to 6 per cent of overall  supply by volume in Victoria and South Australia, and as a result that reduced average prices over the 7-day period by more than 40 per cent.

SKM said its analysis is likely to be conservative because of the way it did its modelling.

It noted that the electricity market experienced some price spikes, but this was mostly associated with sudden outages from large thermal generation (coal and gas).

“We conclude that wind generation is likely to have significantly reduced the price impact brought about by sharply rising demand during the heat wave period,” SKM wrote.

“In the seven days to 19 January, wind farms contributed around 6 per cent of overall supply in SA and VIC, and as a consequence, wholesale prices were at least 40% lower (on a consumption weighted average basis) than they would have been without the contribution of wind.”

As PowerShop explained in its blog:

“Wholesale electricity prices are set every 30 mins by finding the plant to supply the last bit of demand at the lowest price (at which price that plant will run).  Once built, wind farms will run at a price of ZERO … so they never make the wholesale price more expensive and they reduce wholesale prices significantly when they run.  So LRET uses small volumes of wind reduce spot prices for the whole market, meaning that savings for customers far outweighs the cost of LGCs.

“Yet the “big three” power companies – Origin, AGL and Energy Australia – continue to lobby for a reduced LRET target, arguing that there may be an “oversupply” of electricity.  By “oversupply” they presumably mean that prices may come down, competition would increase and consumers would pay less.”

Meanwhile, anti-renewable lobbyists continue to try and demonize wind.

Phil Barresi, the head of the Energy Users Association of Australia, wrote in the lobby group’s newsletter (and in the AFR).

“Much has been made of the role of renewable energy during this time (heatwaves) . Yet during last week’s event, an analysis of the peak spot prices indicate they were below those in previous years and peak electricity demand this summer remains significantly below historic highs. The data shows wind farms in South Australia and Victoria produced twice as much electricity when prices were below $300/MWh than they did when prices were above this level. Output from solar Photovoltaic (PV) on the other hand was closely correlated to the times of very high prices, typically occurring mid-afternoon.”

No kidding! Renewable energy types suggest this is a circular argument, because if wind depresses pool prices, particularly in SA, it logically follows that wind generation will be greater during periods of low-moderate pool prices.

“This argument is about as sensible as saying people walking around with umbrellas cause it to rain — which we all know is true as every time I see people with umbrellas up it’s raining,” one executive said.

Barresi also suggested:

“Conversely, gas generators ramped up supply markedly when prices and demand soared.”

Again,no kidding! That has always happened. However, it is no longer such  a badge of honour for the gas fired generators because the prices they get when these events happen (and they happen less often) are much lower than previously.

This is born out by results of EnergyAustralia released overnight, which conceded that the lack of a price surge in the recent heat-waves prompted it to write down the value of some of its gas-fired generators.

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • Peebles Squire

    This is great news for wind power all over the world. In the U.S., wind power’s costs have dropped by 43 percent in 4 years, making it an attractive proposition. The fact that wind energy is so easily integrated into the grid makes the prospect all the more exciting.

    Wind power has already saved the day twice this year: when traditional fossil plants shut down during the “polar vortex” weather event in North America, and natural gas supplies became scarce, sending prices soaring, wind power stepped in to provide much needed energy, keeping the lights on and acting as a buffer against fuel price spikes.

    For more, check out AWEA’s blog, Into the Wind: http://aweablog.org/blog/post/wind-power-once-again-saves-millions-by-keeping-energy-prices-in-check-during-cold-snap

    Peebles Squire
    AWEA

  • Larry

    Utility companies need to wake up and support clean energy systems or have popular pressure (in the form of government requirements) do it for them

    • Steve Grinwis

      Won’t the markets do it for them soon? Won’t be long until a solar and battery system is cheaper than utility rates.

      • Larry

        I definitely hope you are right Steve. The sooner the better

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