Wind Energy Will Cost Households €227 per year

Irish Energy Blog can reveal that by 2020, wind energy will cost each household € 227 per year. This calculation includes grid upgrades, another interconnector, new fast acting back up plant and other system costs required to integrate high penetrations of wind into the system.

The cost for SMEs and large industry is calculated to be higher at around €377 but higher again for large industry users.

Export prices for wind are considered to be zero or as good as zero as in Denmark. There is no impact on wholesale prices because gas generation will still be required and will be the last form of generation taken under the merit order system (therefore setting the price for everyone).

So this charge will be equivalent to another property tax charge for most households. By this stage, the plan is to install smart meters in every house which will further push up the cost of electricity during peak times.

Workings

Wind Subsidy

Electricity Demand by 2020 is estimated to be about 29,000 GW. Wind energy will need to generate 37% of this demand. Assuming it will, (but of course there is no certainty that it will), then wind will be generating 10,730GW by 2020. There is no sign that the price of fossil fuels will recover in the next few years. The low price of gas means that wholesale prices are now about €30-35 / MWh. This means that wind receives a subsidy in the region of € 50 / MWh.

10,730GW x € 50 / MWh = € 536 million. 

This is roughly in line with this blogs previous calculation based on how the PSO Levy is calculated :

PSO Levy could increase by € 550 million by 2020

Grid 25

Grid 25 is a new grid to be built around the country primarily for renewable generation. The cost has changed over the years but 3.5 billion is still a good estimate.

Payable over 20 years - this works out at €175 million per year.

Transmission Lines

New lines required for transporting the energy generated by wind to the grid was recently estimated by the CER to be € 1 billion.

Payable over 20 years - this works out at € 50 million per year.

DS3 Programme

The DS3 Programme is a programme designed to enable power stations run on the grid behind high levels of wind energy. It is estimated to cost € 200 million. I have thrown in an additional €100 million for extra wear and tear to generators as a result of increased cycling and running on low loads. These figures are most likely conservative.

Payable over 5 years - works out at € 60 million per year.

Constraint Costs

I have estimated this to be an additional €100 million per year. These are payments made to generators to come offline to allow wind energy priority access to the grid (or to switch on if there is too little wind). There are also curtailment  payments to wind generators when there is too much wind energy for the grid to handle. The former will increase in the future, the latter is expected to decrease depending on the success (or not) of DS3.


Open Cycle Gas Generators (OCGT)

OCGTs are fast acting plant but less efficient than CCGTs. Eirgrid are planning to connect two of these to the grid to act as back up for wind farms. I have estimated the cost at € 1 billion.

Payable over 20 years - works out at € 50 million per year.

A second interconnector to UK / France - I have put the cost at €600 million. This will be used to export surplus wind energy and import cheaper nuclear electricity.

Payable over 20 years - works out at € 30 million per year.

Total costs are € 1 billion per year.


The CER in their PSO Decision Paper give household energy costs at 37.61% of total bills. So €376 million of this bill will be paid by households and €624 million by SMEs and industry.

With 1.6 million households in the country this works out at € 227 per household per year.

Michelin Factory closes due to high energy costs

News today from RTE, as predicted on this blog, more job closures due to high energy prices :

Michelin has announced plans to close its tyre factory in Ballymena, Co Antrim, with the loss of 860 jobs.

The company said it will "run down" the manufacturing plant by mid-2018 as part of a restructuring plan that will see investment in its facilities in Dundee and Stoke on Trent.The announcement comes a year after another major employer in Ballymena - the JTI Gallaher tobacco factory - announced plans to close its operation in the town by 2017, with the loss of around 870 jobs.

The factory in Ballymena opened in 1969.

Managers have been warning for a number of years that high-energy costs were making production increasingly unsustainable.

"Despite great efforts and progress being made in previous years, other European plants are still more competitive than Ballymena.

Back in 2013, the company installed a 4.6MW wind farm on site to try to cut energy costs :

Dale Vince, Ecotricity founder, said: “Building wind power on-site and supplying it directly to a factory not only cuts carbon emissions, but because you don’t need to transport the electricity via the grid – it cuts energy costs too.

“This is a way to make businesses more competitive and more environmentally sustainable at the same time.”

Onsite Wind Energy – pioneered by Ecotricity and known as ‘Merchant Wind’ – ensures that electricity is channelled direct to the end user, while any excess energy not used on site goes into the local Grid.

Wilton Crawford, Factory Manager at Michelin Ballymena, said: “The wind turbines are a welcome asset for Michelin in Ballymena, and will help alleviate the challenge of increased energy costs, particularly as energy prices in Northern Ireland far surpass those in Europe.”

Ecotricity’s two turbines at Michelin’s Dundee site have already produced well over 43 million units (kWh) of energy since being commissioned in 2006: that’s enough electricity to power over ten and a half thousand average homes, keep an iPad going for over 3 and a half million years, or drive an electric car (Nissan LEAF) around the equator over six thousand times.

 However, as they have now learned, wind power is too intermittent to provide reliable power to a factory.

Significant amounts of Generation in the pipeline

Eirgrid have announced that they are upgrading their transmission network to facilitate future increases in power generation.  Total planned generation will be 15,000MW by 2023 - three times that of peak winter demand. In otherwords, this is generation that is simply not required.

There is no mention of the cost or environmental impact of all this infrastructure. There is mention that in a period of volatile energy costs renewable energy sources can also contribute to cost competitiveness by reducing dependence on imported fossil fuels but as Irish Energy Blog has shown fossil fuel prices can come down in real life with investment in subsidized renewables preventing these savings from been passed on to the consumer :

Gas Prices Hit Six Year Low but still Electricity Bills rise

There is also the question of whether An Bord Pleanala (or the local planning authority) should carry out a cumulative assessment of this entire project, which includes new transmission and new generation, as it certainly looks like there will be significant environmental impacts.

Gas Prices Hit Six Year Low but still Electricity Bills rise

The above diagram gives a good indication of where gas prices in the EU are at. It reveals that gas prices have hit a six year low i.e gas prices have not been this low since 2009. Gas power is usually the last generator called on by the National Grid in Ireland so this is the one that sets the wholesale price of electricity for all generators (under the merit order system).

If we look at a recent wholesale price (SMP) profile we can see that it is well below € 50 / MWh, at about € 30 / MWh :

Indeed, we can see that back in February this year it was up around the € 50 / MWh mark :

But still electricity bills are not getting cheaper. This amounts to an abuse of the free market, a market all consumers should be entitled to participate fairly in. The excuse of rising prices for fossil fuels is often used as a justification to hike bills but the opposite doesn't happen here in Ireland, the land where the electricity consumer can be milked till the cows come home.

The guy supposed to be regulating this can be contacted at info@cer.ie

Wind Energy Increases the Price of Electricity - The Proof

Europe Electricity Price Vs Installed Wind / Solar Capacity 

This is probably the most important graph in the current energy debate. I wonder how many of the Irish media will publish it ? Thanks to Euan Mearns.

The Y-axis shows residential electricity prices for the second half of 2014 fromEurostat. The X-axis installed wind + solar capacity for 2014 as reported in the 2015 BP statistical review normalised to W per capita using population data for 2014 as reported by the UN.

Whats In Your Electricity Bill : Part 6 Conclusions

Diagram 1: Energy Prices by component (Source ESB and Eurostat)

The above diagram shows in very simple terms the factors which are driving up our bills. Energy and Supply is basically the cost of generating the electricity including wholesale costs of fuel, operation costs etc. As ESB noted, only 40% of the electricity price is subject to the competitive market; the balance is set by policy measures and regulated prices. So Energy and Supply makes up 40% and if the costs come down in the wholesale market as they have recently done then this cost comes down. The problem then lies with the 60% - Networks and Taxes and Levies. The main driver in these costs is government policy. 

One of the things to note is that when wholesale costs come down, the cost of energy and supply comes down but levies goes up. This is explained in this blogpost :

http://irishenergyblog.blogspot.ie/2015/01/pso-levy-set-to-soar-this-year.html

So next time you hear about rising electricity prices been blamed on the wholesale cost of gas going up, you will know that this is only 40% of your bill, and so does not fully explain what is going on. Taxes and Levies must be increased to pay for additional wind capacity and network costs must also be increased as explained below. But the situation is even worse when wholesale costs come down, as just like in a weighing scales, taxes and levies must then increase further to make up the larger gap between the market price and subsidy price for peat and wind etc.

Network Costs

While there was always an issue in Ireland with dispersed houses and buildings, thus requiring a larger network than other countries, we can see from Diagram 1 that something else has impacted on this cost since 2008. Between 2008 and 2012 we added about 700MW of wind, driving network costs up to bring this wind energy from remote regions to where it is needed. Two new gas plants were also built in Cork but these were built nearby existing power plants which meant that minimal transmission infrastructure was required. 

We can refer to Eurostat to see what has happened network costs since 2012 (click to zoom in):

Network Costs for domestic customers 

Network Costs for industrial customers 

For households, the cost has gone up from € 0.0669 in 2012 to € 0.0697 in 2014. For industry,
the cost has gone up from € 0.0446 in 2012 to € 0.0455 in 2014. 

For industry, they have had a 47% increase since 2008.

Taxes and Levies

For industrial consumers, taxes and levies have more than doubled since 2012. Hence, why we have industries complaining that they are been unfairly levied. For households, levies have gone up by 35% since 2012. Levies comprise the ever increasing PSO Levy which was discussed in Part 5.

Taxes and Levies for households

Taxes and Levies for industrial customers with consumption between 2,000MWh and 20,000MWh

Taxes and Levies for industrial customers with consumption between 500MWh and 2,000MWh

Taxes have remained static i.e. VAT at 13.5%

Other Costs

Other costs include supplier profit and admin costs to run the electricity market. Of course, the suppliers do make good profits and engineers and staff are paid higher than most of their European counterparts. But anyone that has followed this blog, should know that it is a mistake to blame the high electricity bills coming through your door entirely on capitalism. It is socialist interventionist policies that fixes the price above a certain level.

Admin costs would have also gone up in recent years due to the increased complexity in the market with increased wind and interconnection. What has happened is that the market has now become imperfect. If everyone had perfect foresight, the system would run smoothly i.e. be "perfect". But because nobody can have this level of foresight and can only know what will happen after the fact (i.e. when the wind rushes in unexpectedly or doesn't blow at all), the system runs imperfectly and as Eirgrid point out "less optimal".

To be fair to one supplier, they are not too happy about this situation. After all, one of the benefits of wind energy and interconnection that we were sold by our politicians was that it would reduce energy costs :

Concern was raised by a respondent in which they expressed their disappointment ‘that despite growing levels of wind and recently introduced TSO incentives to reduce dispatch balancing costs, the overall charges are increasing. This increase and the fact that the supplier have no control over these increases does not bode well for consumer perception of increasing energy bills.’

And the CER Response: 

 The RAs expect the TSOs to continue to seek mitigation measures to reduce constraint costs for the betterment of electricity consumers.

In other words, we will keep trying to keep the costs down. Just don't expect it to happen anytime soon.....

Lower fuel costs does not mean lower bills

The year 2008 saw record prices for fossil fuels (see page 8 of this document). 

The SMP is the market price paid to generators and is influenced by international gas prices. So we can see from the below that the SMP was highest in 2008 and in 2013 was lower reflecting the fact that gas prices never recovered fully since 2008. So we would expect that our electricity bills would be lower in 2013 than 2008. 

In 2008, electricity prices were € 20.33 per 100kWh (see also diagram here on Page 15 confirming this figure does include taxes)

But in 2013, electricity prices were higher at € 22.95 :

So despite lower fuel prices, electricity prices were higher.  It was other factors apart from fuel - network costs and taxes and levies - that drove the price of electricity up.

Energy Regulator confirms that wind energy will result in additional costs

This blog has consistently made the point that wind has and will result in more costs in the generation of electricity, because when you mix large amounts of non-dispatch with dispatch generation, the dispatch no longer runs as smoothly as before, meaning that the costs of running your dispatch goes up.

The Energy Regulator confirmed this in an Oireachtas Committee a couple of weeks ago :

Wind has been least-cost in the past, but that does not necessarily mean it will be least-cost in the future. More and more wind on the system adds extra costs. It is a question of the law of diminishing returns. To bring in more and more wind, we have extra network costs. We need more flexibility from the generators. The wind does not always blow. When the wind is not blowing, we need to have extra capacity there to keep the lights on. The cost of that increases with the levels of wind. Some of the microgeneration technologies, such as solar technology, start to become more competitive in such circumstances. They also have falling capital costs. We constantly need to look at this in a cost framework. While we have security of supply requirements and we need to consider the environment, cost is a major feature of our overall duty.

https://www.kildarestreet.com/committees/?id=2015-02-18a.1291&s=wind+farm#g1411 

It is good to see the Regulator now focusing on cost, because it certainly is going to become an issue into the future.

More on the Energy Bubble

Figure 1: How generating capacity has increased since 2006. East West Interconnector included in 2013 and 2014, also Great Island CCGT included in 2014 and retired oil plant on same site taken out


The above graph, Figure 1, shows the levels of electricity generation capacity for the Republic of Ireland at the end of 2014. We are now approaching the 10 GW mark, the highest ever in the State. If you really want to know why your electricity bills are so high then you only need to look no further than the above graph. All the above power stations and wind farms have to be financed through our bills, even though we only use on average less than a third, and at peak times less than half, of this capacity in electricity. The key to understanding this graph is looking at the gap between the blue (average demand) and black line (total capacity including wind) and the red (peak demand) and black line in 2006 and then comparing this gap with the current gap in 2014 (See Figure 2). As you can see, it has gone out of control. Consider that back in 2006, when the economy was booming, there were no blackouts . The level of back up capacity was sufficient but now that we have over 2GW of wind, it appears that more back up capacity is required to maintain a stable and reliable system.

	2006	2014
Total Capacity / Average Demand	2.0 times	3.2 times
Total Capacity / Peak Demand	1.3 times	2.0 times

Figure 2: Total Capacity is now over 3 times that of average demand and double that of peak demand

There is an argument put forward by the Greens that this excess capacity will be required when everyone switches over to electric cars and electric heating systems as this will lead to a surge in average and peak demand. But there is a major flaw in this argument. You would still need enough dispatchable plant (i.e. plant that can be switched on and off at the touch of a button rather than when the wind blows) at least equal to the peak demand under this scenario, no matter how many wind farms there are. Otherwise, what would everyone do on a calm day like the 11th October 2014 ? Cycle the 10 or 20 miles or more to work ? Or perhaps wear extra woolly jumpers ? So you would still need to build more power stations to cover the surge in demand under this scenario and wind turbines would still result in excess capacity just like in the above graph.

Fuel Mix 2013 - another historic milestone

Figure 3: Fuel Mix 2013 with UK imports broken down into original fuel sources

Figure 3 shows that in 2013, Ireland used nuclear power for the first time. 2% of the electrons going into your electric socket in 2013 came from nuclear stations in the UK. I have broken down the power consumed here through UK imports into their energy sources and added that to the fuel mix provided by SEAI to arrive at the above chart. UK coal power accounted for 40% of our imports with gas at 25% and nuclear at 21%. The 10GW or so of UK wind provided just 6% of imports. So we are still very reliant on gas and coal power - almost 70% of the electrons entering your home in 2013 came from gas and coal power. (not including spinning reserves or back up generation)

But when we look at SEAI's original chart it tells an interesting story :

Figure 4: SEAI Fuel Mix 2013

While on the face of it, wind power did well, one has to put the output of a generator in the context of its generating capacity. The following table (Figure 5) shows the share of generating capacity each energy source had in 2013, so for example, gas plants made up 44% of the entire power plant and wind farm fleet in 2013.

Ireland's Power Generation Mix	2013
Gas	44%
Wind	20%
Coal	9.5%
Peat	4%
Interconnection	5.5%
Oil	12%
Hydro	2%
Pumped	3%

Figure 5: Generating mix 2013

Definitions used :

Grid Acceptance Rate (GAR): the rate at which when power becomes available from a generating source that it is accepted by the grid. So wind power has a grid acceptance rate of 1:1 because it has priority dispatch, meaning when wind power is available it is automatically taken by the grid. Gas has a GAR of between 1:0.8 - 0.9 because when wind becomes available it pushes gas off the grid. I will assume 1:0.85 for this analysis. Coal and Peat are assumed to have a GAR of 1:0.95 as they are occasionally pushed off by wind

Fuel / Capacity Ratio : the position of a fuel source in the fuel mix relative to its position in the generating capacity mix. So a fuel source that makes up 50% of the capacity and 50% of the fuel mix will have a fuel / capacity ratio of 1:1.

Gas power gave just over 1MW power for 1MW share of capacity so had a fuel / capacity ratio of 1:1. Peat gave over twice as much power as capacity (2:1) while coal gave approx 1.6MW power for 1MW capacity (1.6:1). It is no surprise that the highest emitting power sources produced the most power relative to their size. This is because coal and peat store higher concentrations of energy than other fuel sources having formed over millions of years. Oil power, representing 12% of capacity, had a negative fuel / capacity ratio because these plants were lying idle most of the time. Oil plant are mostly used for "peaking" , i.e. when peak demand goes above normal which doesn't happen very often nowadays. So it had a significantly low Grid Acceptance Rate (somewhere around 1:0.01), whereas gas, peat and coal had GARs very close to 1:1 (between 1:0.85-0.95)


So how did wind do? Well, it had a negative output relative to its share of capacity. It comes out at 0.8MW of power for each share of MW installed. This is despite it having priority dispatch i.e. when the wind blows, the power is taken straight away by the grid. So levels of other power sources - mostly gas, and sometimes coal and peat - are reduced when wind is available. Applying the above definitions, this means that wind had the best Grid Acceptance Rate of all fuel sources i.e 1:1, but had a negative fuel / capacity ratio of 0.8:1. So wind and oil came out the worst, but oil had the lowest Grid Acceptance Rate, whereas wind had the highest. What this shows is that wind is a poor storage of energy when compared to coal, gas, peat and oil and storage solutions cannot solve this problem, rather it simply transfers the storage of this energy from one hour to another. What is required is a renewable source that contains higher concentrations of energy


And herein lies the problem with wind energy - you can't run a reliable grid if you install power plants that almost always give a negative fuel / capacity ratio. If you install 1,000 MW of wind, and demand hits 1,000MW, the power from the wind will almost always be less than 1,000MW so you have a blackout. This problem means that wind energy can never replace conventional plant and so competitiveness goes out the window