Renewable Energy Foundation

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Notes on Wind Farm Constraint Payments

Most UK wind farms (approximately 270 of them) are connected to the low voltage regional electricity networks managed by Distribution Network Operators (DNOs). These wind farms are referred to as ‘embedded’ generators, and output from them is indistinguishable to the electricity system operator from a drop in demand from consumers (technically, it is only perceived as ‘negative load’). Approximately one third of the total installed wind capacity is embedded generation.

The remaining two thirds of the installed wind capacity comes from relatively few (sixty) very large wind farms, such as offshore wind farms, that are connected to the high voltage network. The output of these wind farms is visible to National Grid, the system operator. Of these wind farms, the very largest (thirty wind farms, representing about half of all installed wind capacity) are participants in the ‘Balancing Mechanism’.

The ‘Balancing Mechanism’ (BM) is the name of the trading system which is operated by National Grid and used to match electricity demand to electricity supply. This is necessary because electricity cannot be stored in any significant volume. Consequently, as demand for electricity goes up and down during the day, electricity supply must also be increased and decreased to match on a second by second basis. The Balancing Mechanism allows National Grid to accept bids and offers from participating electricity generators to decrease or increase electricity generation. These trades take place in a succession of trading periods which comprise each half hour of the day. Most of the participating electricity generators are nuclear, gas, and coal fired power stations, but the number of wind farms joining the BM is increasing, particularly as more large offshore wind farms are built.

Understanding how the UK electricity system is kept in balance via trades in electricity is complex but a useful beginners guide to the subject is available from Elexon.

Much (but not all) of the data related to electricity generation and trading via the Balancing Mechanism is in the public domain on the website: www.bmreports.com

Generators may be asked to reduce generation, even if they are contracted in to the market, because there is an error in the demand forecast, and less electricity is required than was expected. In such cases, a conventional generator will actually pay to reduce its output, because it is saving fuel. The generator’s financial position is protected because it retains that part of its price over and above the fuel cost. In other words when it is contracted into the market and is for some reason then compelled by National Grid to stop generating it does not lose income.

Sometimes payments are made to a generator in return for reducing output because more electricity is being generated than can be used in a particular region because a grid ‘constraint’ exists - an analogy would be a road block - preventing that electricity being exported to a region where the electricity could be used.

Such a constraint exists between Scotland and England. Increasingly more electricity is being generated in Scotland than can be used in Scotland, and the grid interconnections between Scotland and England are insufficient to take the excess electricity which is generated, usually at times of, often unexpectedly, high winds and low Scottish demand.

Constraint payments to wind farms to reduce output started in 2010. Prior to that, National Grid usually called on gas and coal power stations to reduce electricity output which is the cheaper option for the reason described above. There is a fundamental difference between costs of reducing output between conventional power stations and wind powered generators. If a fossil-fuelled power station reduces output, savings are made on the cost of the fuel which need not be used. As a result of this, fossil-fuelled power stations submit negative bids to the system operator indicating they will pay National Grid a certain sum per MWh if asked to reduce output. Conversely, wind farms do not have fuel costs, but if they are called upon to reduce output, they lose subsidies such as the Renewable Obligation Certificates (ROC) and the Climate Change Levy Exemption Certificates (referred to as Levy Exemption Certificates, LECs). This, in part, explains why wind generator participants in the Balancing Mechanism submit positive bids to the system operator indicating that they need to be paid by National Grid to reduce output.

What has become clear over the last year is that the amount charged by wind farms is very significantly in excess of the value of the subsidies foregone. 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.

Not all constraint payments are in the public domain. Where a private contract has been entered into between National Grid and a generator, the participants, volumes and price of the trades are not published. Thus, the user should remember that the Constraints Data shown on the REF website refers only to those trades carried out as part of the Balancing Mechanism. It appears from data reported in a Parliamentary Question that the annual wind farm constraints total of approximately £12.8 million made through the Balancing Mechanism in 2011 is nearly matched by a further £12.7 million in payments which are result of confidential bilateral trades and are not in the public domain. REF believes that such charges on the consumer should be visible to the market to ensure market transparency, and also to facilitate competition to reduce costs (see REF press release).

The United Kingdom currently has approximately 6 GW of wind power in total, but has plans for over 30 GW by 2020. The fact that substantial constraint payments are already being made with 6 GW of wind power demonstrates that very significant grid expansion will be required to accommodate 30 GW of capacity. However, grid expansion is both expensive and time consuming, and there is a real possibility that constraint payments may rise very significantly in the future.

In summary, REF believes that it is in the consumer interest that data on constraints made through the Balancing Mechanism is made public, and this database enables the interested viewer to gain some insight into the current state of affairs.

The REF Online Database of Wind Farm Constraint Data in the Balancing Mechanism

The main page shows the BM wind farm constraints payments by settlement date in reverse chronological order. Clicking at the top of any column sorts the data by that column and a second click reverses the sort order. Hovering over any column header reveals a brief description of the contents of that column.

At the top of the page are clickable options to look at the same set of data in different views, such as by Annual Total or by Wind Farm.

It is possible to select any particular settlement date by clicking on that date. This provides a screen of data showing the constraint payments on that date in each half hour settlement period. There are normally 48 half hour settlement periods in a day, but on the two days of the year when the clocks change for summer time there are more/fewer settlement periods.

At the top of the screen of daily payments clickable options permit the user to choose whether to view the day’s data by ‘Settlement Period’ or ‘Wind Farm’, or both ‘Settlement Period’ and ‘Wind Farm’. Similarly, it is possible click on an individual wind farm in the first page of constraints data and see all the information for that wind farm.