EU Referendum


Energy: balancing the system


24/08/2014



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A wind farm has been paid £11 million over three years not to produce electricity under the "constraints system", says the Sunday Telegraph in a "shock horror" probe. Needless to say, though, this is by no means the whole story. But if you want a more comprehensive overview, you will not get it from this august publication. Instead, one must go to the National Grid website.

There, it helpfully explains that the grid does have to be balanced, which involves supplying reserve power when demand is high and paying generators not to produce power, when demand drops. The system of paying generators not to produce is known as the "constraint" payment system.

The total cost of constraints in 2011/12 was £324million. Of this amount, £31million was paid to wind operators. In other words, £293 was paid to non-wind generators not to produce electricity.

The cost of balancing also includes the provision of reserves, such as STOR, and in 2012/13, this ran to £803million. The constraints in that period cost £170 million. Of that amount, £7 million was for wind constraints, which means that £163 million – the vast majority of constraints - was not paid to wind generators.

The fact that constraint payments are made to wind operators, therefore, is not the issue. What is of concern, according to REF, is something actually very different. The level of the payments made to wind operators far exceeds that needed to cover costs, such as the loss of subsidies.

For example, the average price paid to Scottish wind farms to reduce output in 2011 was £220 per MWh, whereas the lost subsidy is approximately £55 per MWh. The amount paid by conventional plant such as coal and gas was approximately £34 per MWh to reduce output in 2011.

Ultimately the cost of balancing electricity is paid by the electricity consumer so this large difference in cost is not in the consumer interest, says REF. And that is the story. But even then, it is still not the whole story.

According to the Telegraph, Ofgem says that since it was given powers in 2012 to prevent firms getting an "excessive benefit" from constraint payments, the prices paid have fallen from an average of £197 per MWh to £83 per MWh. This is still high, but much less than earlier levels.

But, with that, a spokesman for National Grid tells us that constraint payments are [one of] the most economically efficient way to balance the system – for the moment. Balancing costs are part of the cost of providing electricity, and that means, on occasions, generators are paid not to produce electricity. Which means that there isn't very much of a story here, after all. 

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