While wind turbines can’t produce electricity if the wind isn’t blowing, the electricity they produce is worth exactly as much as the electricity produced by any other type of power plant.
When a wind turbine produces a kilowatt-hour of electricity, it’s fundamentally worth as much as a kilowatt-hour of electricity from nuclear power, coal power, solar power, or anything else. There is a slight externality from the variability of wind energy and its “integration costs,” but those are determined to be just 4 tenths of a cent per kWh (not even half a cent per kWh). For sure, this extra cost isn’t even worth mentioning compared to the health and environmental externalities that come from coal and natural gas power plants, or the economic risk that comes with nuclear power plants. Even at very high percentages of wind power (such as seen in Denmark, northern Germany, Scotland, Portugal, and Iowa), wind energy can be integrated into the grid without extra backup energy or costly investments.
For responses to other anti-cleantech myths, see: Anti-Cleantech Myths Debunked (Your #1 Resource).
This is a special guest post by Chris Varrone, Founder & President of Riverview Consulting and former Chief Strategist, Technology R&D at Vestas Wind Systems.
The anti-wind people are at it again, saturating the media with claims that wind energy is “worthless” because wind doesn’t blow all the time. Nothing could be further from the truth.
In a recent interview, host Stuart Varney on FOX-TV hammers at his guest Denise Bode, head of the American Wind Energy Association, saying, “You don’t create electricity when the wind doesn’t blow and the wind doesn’t blow all the time.” Varney is really up in arms about it.
Not to be outdone, our British cousins have been fuming about the Stuart Young Consulting study which came out this month, commissioned by the John Muir Trust. Its author states: “Sadly, wind power is not what it’s cracked up to be and cannot contribute greatly to energy security in the UK.”
This all sounds very plausible until you think about it a bit, which is hard to do while the sound bites are flying back and forth. The truth is that the variable nature of wind resources doesn’t matter very much. We can quantify exactly what the cost of this variability is, and it turns out to be very modest.
This article explains, in layman’s terms, how wind energy is just that, energy, and how this is different from capacity or what are called “ancillary services.” It then goes on to quantify the cost of the ups-and-downs of wind energy, based on multiple academic and industry studies — the answer is that it costs about 4 tenths of a cent per kWh. Finally, it asks the question whether this low cost would continue indefinitely as wind grows to be a large part of our power system, or whether there might be limits to the use of variable resources like wind (and solar).
Wind Provides Energy
Electricity markets reward generating companies in three different ways:
- Ancillary services
Energy is straightforward: the buyer pays for energy, measured in kilowatt-hours. It’s like buying ice cream on a hot day: the seller gets paid to meet an immediate need. There is no guarantee that either party will come back tomorrow.
Capacity is also easy to understand. If you can guarantee me in January that you will be there to meet my need for ice cream on the hottest day of July, then that’s valuable. And it gets a separate (smaller) payment.
Finally, there is a market for ancillary services, which is more complex. Ancillary service providers are there to step in when the grid needs help — to maintain voltage or frequency, or to maintain technical parameters like power factor. To stretch the ice cream analogy a bit, it would be like having a friend follow you around with a cooler filled with ice cream just in case you needed it. Even if you never had a craving, you’d still have to pay them something to be “on standby” all the time.
For the most part, wind farm owners rely on getting paid for “energy-only.” There are occasions where wind energy warrants some degree of capacity payment or even ancillary services payments. But for the most part, the value of wind capacity is low, about 10 to 20% of nameplate capacity. So, a 100-MW wind farm is only worth as much as 15 MW of nuclear power from a capacity standpoint.
However, the energy in wind is worth 100% of the energy in nuclear (or anything else) in the spot market; wind energy in the day-ahead market may be worth a little less, but this can be “firmed” using energy trading desks or by using other assets in the operator’s fleet (e.g., wind farm owners may also own natural gas turbines that can deliver any shortfall in the forecast).
So, the first answer to Stuart Varney and the John Muir Trust and the rest is: wind gets paid for “energy-only,” while fossil fuel generation gets paid for energy plus capacity plus ancillary services. So, intermittency is no big deal — the energy markets have already accounted for all this.
Isn’t There an Externality Here?
By now, our TV presenter is probably scratching his head, but scholars like Robert Bryce of the Manhattan Institute will step up and claim that things are not right, not right at all. “You see, there is an externality,” he will explain. “A hideous externality driven by the near-zero marginal cost of production for wind. Wind turbines use no fuel. This means that wind farm operators can always underbid fossil fuels in the spot market.”
Always. Think about that: the fossil fuel plant is humming along and a storm front moves in. The wind whips up, and the wind farms bid in nearly free power. Well, fossil fuel costs money, so the fossil-plant operator will often choose to ramp down rather than sell electricity for free. But then the storm front moves through quicker than expected — and the fossil plant has to ramp up again. Up and down, over and over, all year long. This is wasteful. It causes increased maintenance. It is an externality imposed on the fossil fuel operators by those darned, fickle winds.
The cycling of fossil fuel plants has been studied for many years, and the generalized form of this problem is called the cost of “wind integration.” As Michael Milligan, a researcher at the National Wind Technology Center, puts it, there are four costs to integrating wind:
- Committing unneeded generation
- Allocating extra load-following capability
- Allocating additional regulating capacity
- Increased cycling operation
I will spare you the details (you can read them here).
The key point for the layman to understand is that the implicit cost of all of these effects can be seen in the ancillary services market (i.e., what it costs the system operator to pay for backup). If there is greater uncertainty, then generators will charge more for providing backup.
How much more? Many studies have found the cost of wind integration to be in the $3 to $5 per MWh range. Or about FOUR TENTHS of a cent per kWh.
That’s it. All you are paying for is a little fuel and a little maintenance.
So Stuart, it’s NO BIG DEAL, okay?
What if Wind Provided 20% of Our Energy?
By now, even the Manhattan Institute’s best and brightest would have sweat on their brow. In my imagination, they would grasp at the final straw, arguing: “Well, that’s all well and good, but you’re forgetting that wind is a marginal player today. It’s easy to integrate a LITTLE wind. But once you get to 10% or 20%, the system breaks down. For every MW of wind you put on the system, you need to add a full MW of fossil fuel to back it up. It’s completely uneconomic from a capital cost perspective.”
Of course this is all specious, too.
Such scholars love to remind us how wind is just 2% of the US Energy pie today, neglecting to mention that 35% of the new-build for the past three years has been wind power.
The fact is that there are already states and countries that have 20% or more wind power over the course of a full year — Iowa for one; Denmark and Northern Germany for another. And, in some of these places, wind accounts for 50% or even 100% of electricity demand for certain periods.
Are there rolling blackouts in Europe due to their reliance on wind energy? No, far from it. The reliability of European grids is far better than US grids. In fact, according to Jay Apt, Executive Director of the Electricity Industry Center at Carnegie Mellon: “The United States ranks toward the bottom among developed nations in terms of the reliability of its electricity service… The average U.S. customer loses power for 214 minutes per year. That compares to 70 in the UK, 53 in France, 29 in the Netherlands, 6 in Japan, and 2 minutes per year in Singapore.”
So, European grid operators have learned how to integrate wind in large quantities. Have they built large numbers of natural gas peaker plants to “back up” wind? No, not at all. European power system experts tell me that they are not aware of even a single gas peaker plant added to balance wind energy — not even in Northern Germany or Denmark.
There is enough capacity in the system to handle everything without adding any extra capacity.
In this context, and given that in 2007, under George W. Bush, the US Department of Energy came out with a plan called “20% Wind Energy by 2030,” it would seem that we are okay for at least the next 20 years.
What happens beyond 20% or 30% wind penetration, it is hard to know for sure. I asked Mr. Peter Jørgensen, Vice President of International Relations at Energinet, Denmark’s grid operator, who told me: “We are able to balance the present system with strong interconnectors, market-based trade with the neighboring countries, and good wind forecasts.”
No one is saying that a country can run solely on wind all year long, but Denmark does plan to reach 50% wind penetration by 2025.
Jørgensen says: “It is a big challenge to integrate even more wind power in the system, but we think that we can manage this task, and we base our activities on the development of a strong international transmission grid, a flexible and coherent energy system and SmartGrid solutions.”
So the key is not “backup” for wind – that’s the wrong concept entirely – but flexibility for the entire system across all generation types. Flexibility comes in four flavors: 1) forecasting and scheduling, 2) transmission, 3) demand-side management, and 4) energy storage. You can explore this more in an article of mine that appeared in International Sustainable Energy Review in Dec 2010.
So, we’ve seen that the variability of wind is really nothing to worry about. Grid operators and power markets already know how to deal with energy, capacity and ancillary services, and while the variability of wind is not costless, the cost has been measured many times, and it is consistently in the half-a-cent per kWh ballpark.
So you can rest easy, Stuart Varney. We’ve got you covered.
- Cost of Wind Power — Kicks Coal’s Butt, Better than Natural Gas (& Could Power Your EV for $0.70/gallon)
- Wind Power is Making Electricity Cheaper (Exxon: Wind to be Cheapest Source of Electricity)
- World Wind Power
- Wind Power Beats Nuclear Power in Texas
Photo via Jasmic
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