Fickle as the wind
10 August 2009
SUGGESTED
Economic Theory
7 August 2009
Regulation
12 August 2009
Government and Institutions
Aggregation is the ignis fatuus of modern modes of thought. Sums beguile. Averages bamboozle. Reality is found at the margins.
Take the government’s plans for wind-power to supply around 22% of our electricity by 2020. That would be ambitious enough if the supply of wind power and demand for electricity were spread evenly over the year. But neither is. It becomes truly heroic when one disaggregates these figures.
Based on the performance of our existing fleet, we would need 36 GW of installed capacity to produce that amount of annual output. The government takes a more optimistic view that 27 GW can produce this power.
The output does not come consistently or predictably from these turbines. Nor will the wind always be blowing somewhere in the country, allowing for smoothing through diversity. The UK is not big enough. In practice, there are periods when the combined output of turbines across the country is only 5% of their capacity, and others when it is 90%.
Our average system demand is around 38 GW. That might suggest that we can absorb the output from those wind turbines. But let’s disaggregate that figure. The minimum is around 22 GW and the maximum is around 58 GW. When we have a mild, breezy summer night, our wind turbines would be producing more than total system demand, even if we turn every other power station off. On cold, still, winter mornings and evenings, as is not uncommon when an anticyclone is settled over the country, wind will be contributing a tiny fraction of that 58 GW. A recent study by Pöyry Energy Consulting demonstrated that there is little correlation between wind output and customer demand.
The wind lobby airily presumes that wind gets priority. Other renewable technologies (which are planned to supply another 8% of our electricity) will be no more willing than wind to reduce output when the wind is blowing, nor able to ramp up when it isn’t. Nuclear power will not be de-rated to zero in these conditions. Whether it’s these technologies or coal and gas generators that provide balancing services, the impact on their financial returns is not proportionate to the amount of output lost, but very much greater, because of high fixed costs and low marginal costs of production. If low-carbon technologies have to be constrained, their contribution towards carbon and renewable targets will be reduced, requiring more capacity to hit the targets, exacerbating the balancing problems, and so on in a vicious circle.
The result will be a massive increase in the variability and unpredictability of energy prices. They will fall to below zero during periods of over-production, and peak prices will be many times higher than today. If demand adjusted accordingly, the system might cope a little better. But we insulate consumers from reality by giving them prices that average out these costs. A market in which production choices are insulated from demand, and consumption choices are insulated from supply is a recipe for disaster.
Take the government’s plans for wind-power to supply around 22% of our electricity by 2020. That would be ambitious enough if the supply of wind power and demand for electricity were spread evenly over the year. But neither is. It becomes truly heroic when one disaggregates these figures.
Based on the performance of our existing fleet, we would need 36 GW of installed capacity to produce that amount of annual output. The government takes a more optimistic view that 27 GW can produce this power.
The output does not come consistently or predictably from these turbines. Nor will the wind always be blowing somewhere in the country, allowing for smoothing through diversity. The UK is not big enough. In practice, there are periods when the combined output of turbines across the country is only 5% of their capacity, and others when it is 90%.
Our average system demand is around 38 GW. That might suggest that we can absorb the output from those wind turbines. But let’s disaggregate that figure. The minimum is around 22 GW and the maximum is around 58 GW. When we have a mild, breezy summer night, our wind turbines would be producing more than total system demand, even if we turn every other power station off. On cold, still, winter mornings and evenings, as is not uncommon when an anticyclone is settled over the country, wind will be contributing a tiny fraction of that 58 GW. A recent study by Pöyry Energy Consulting demonstrated that there is little correlation between wind output and customer demand.
The wind lobby airily presumes that wind gets priority. Other renewable technologies (which are planned to supply another 8% of our electricity) will be no more willing than wind to reduce output when the wind is blowing, nor able to ramp up when it isn’t. Nuclear power will not be de-rated to zero in these conditions. Whether it’s these technologies or coal and gas generators that provide balancing services, the impact on their financial returns is not proportionate to the amount of output lost, but very much greater, because of high fixed costs and low marginal costs of production. If low-carbon technologies have to be constrained, their contribution towards carbon and renewable targets will be reduced, requiring more capacity to hit the targets, exacerbating the balancing problems, and so on in a vicious circle.
The result will be a massive increase in the variability and unpredictability of energy prices. They will fall to below zero during periods of over-production, and peak prices will be many times higher than today. If demand adjusted accordingly, the system might cope a little better. But we insulate consumers from reality by giving them prices that average out these costs. A market in which production choices are insulated from demand, and consumption choices are insulated from supply is a recipe for disaster.
14 thoughts on “Fickle as the wind”
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What I find difficult to grasp is why the government has allowed this country’s civil nuclear energy production capacity to come so near to the end of its useful life before thinking about any replacement.
Was it a failure to recognise the problem? That seems inconceivable.
Was it a green hope that ‘renewables’ (whether from wind power or something else) might suddenly provide much of the solution?
Or was it just unwillingness to make difficult political decisions about nuclear energy?
Whatever the reason, not only the government but also the opposition seem to have been irresponsible in allowing this problem to linger on.
Would a free market in energy have done better?
What I find difficult to grasp is why the government has allowed this country’s civil nuclear energy production capacity to come so near to the end of its useful life before thinking about any replacement.
Was it a failure to recognise the problem? That seems inconceivable.
Was it a green hope that ‘renewables’ (whether from wind power or something else) might suddenly provide much of the solution?
Or was it just unwillingness to make difficult political decisions about nuclear energy?
Whatever the reason, not only the government but also the opposition seem to have been irresponsible in allowing this problem to linger on.
Would a free market in energy have done better?
I wonder to what extent ’smart-metering’ will help balance supply and demand. Would it be possible to charge consumers different rates on different days, according to wind conditions?
I wonder to what extent ’smart-metering’ will help balance supply and demand. Would it be possible to charge consumers different rates on different days, according to wind conditions?
If you hadn’t written the book on it, you would be amazed at the extent of the politicians’ and civil servants’ technical and economic ignorance, the bad information provided to (and swallowed by) them by rent-seekers in all sectors, and their determination only to listen to those whose naked self-interest aligns with whatever delusion they have chosen to believe for ideological and public-choice reasons.
Anyway, nuclear is no more a magic bullet than renewables (see http://www.pickinglosers.com/policy/energy/nuclear ). Last time they picked that winner, it didn’t go so well, as you know.
It’s not just a question of a free market, but of the precise institutional framework. Ours is broken.
If you hadn’t written the book on it, you would be amazed at the extent of the politicians’ and civil servants’ technical and economic ignorance, the bad information provided to (and swallowed by) them by rent-seekers in all sectors, and their determination only to listen to those whose naked self-interest aligns with whatever delusion they have chosen to believe for ideological and public-choice reasons.
Anyway, nuclear is no more a magic bullet than renewables (see http://www.pickinglosers.com/policy/energy/nuclear ). Last time they picked that winner, it didn’t go so well, as you know.
It’s not just a question of a free market, but of the precise institutional framework. Ours is broken.
Smart-metering alone will do little. If accompanied by cost-reflective tariffs, it could have an effect. It would depend (for all but the larger customers) more on smart controls and automation than on direct individual action. The personal transaction costs of monitoring an unpredictable price and switching appliances on or off to suit may be too high for most people. The intermittency patterns can be too extended for it to be practical to switch equipment off when the wind isn’t blowing. Smart meters will be more effective at encouraging adaptation to predictable variations: for instance, charging pluggable hybrids at night at low cost. Wind will be smoothed by dispatchable generation.
Smart-metering alone will do little. If accompanied by cost-reflective tariffs, it could have an effect. It would depend (for all but the larger customers) more on smart controls and automation than on direct individual action. The personal transaction costs of monitoring an unpredictable price and switching appliances on or off to suit may be too high for most people. The intermittency patterns can be too extended for it to be practical to switch equipment off when the wind isn’t blowing. Smart meters will be more effective at encouraging adaptation to predictable variations: for instance, charging pluggable hybrids at night at low cost. Wind will be smoothed by dispatchable generation.
What I often wonder is whether nationalization of the electricity industry (and probably others) was a reverse takeover. We thought we were introducing free-market disciplines to parts of the public sector, but it became a way for the Greater Bureaucracy to break out from Whitehall and wrap its tentacles around chunks of the market. The creation of “national champions” and local monopolies provided the critical mass and anti-competitive milieu for the bureaucracy to survive and thrive in an unfamiliar environment. To this day, although in some ways it is a competitive market, in other ways it exists cheek by jowl with the civil service, pretty much writing their energy policy for them.
What I often wonder is whether nationalization of the electricity industry (and probably others) was a reverse takeover. We thought we were introducing free-market disciplines to parts of the public sector, but it became a way for the Greater Bureaucracy to break out from Whitehall and wrap its tentacles around chunks of the market. The creation of “national champions” and local monopolies provided the critical mass and anti-competitive milieu for the bureaucracy to survive and thrive in an unfamiliar environment. To this day, although in some ways it is a competitive market, in other ways it exists cheek by jowl with the civil service, pretty much writing their energy policy for them.
Smart meters may be more useful than you think – they are two way, not only do they report usage to central control but central control can also tweak them, turn down the voltage, limit usage or even turn off the supply. The man from whitehall will be able to send us to bed when we ought to go.
Smart meters may be more useful than you think – they are two way, not only do they report usage to central control but central control can also tweak them, turn down the voltage, limit usage or even turn off the supply. The man from whitehall will be able to send us to bed when we ought to go.
Englishman, no smart meter that I am aware of will turn down the voltage or limit usage. Some incorporate an option to turn off the supply, which I agree should not be imposed. If the smart meter includes outputs, which I think would be a very good idea, then it would be possible to attach equipment that might do any of these things (though why anyone would ever want to turn down the voltage, I can’t imagine). But that would be a personal choice, not proposed to be inflicted, nor easy to inflict, by government or energy companies. So far as I know, the “two-wayness” of smart meters refers mainly to communications (e.g. price information), not control.
Englishman, no smart meter that I am aware of will turn down the voltage or limit usage. Some incorporate an option to turn off the supply, which I agree should not be imposed. If the smart meter includes outputs, which I think would be a very good idea, then it would be possible to attach equipment that might do any of these things (though why anyone would ever want to turn down the voltage, I can’t imagine). But that would be a personal choice, not proposed to be inflicted, nor easy to inflict, by government or energy companies. So far as I know, the “two-wayness” of smart meters refers mainly to communications (e.g. price information), not control.