It is now three years since the Renewable Energy Foundation revealed the growing problem of excessive prices charged by wind generators in Scotland to cease generation. However, and in spite of an intervention in February 2014 by the Minister of State for Energy, Michael Fallon, MP, there is no sign that the wind industry is willing to deal with this profiteering through self-regulation.
March 2014 has seen both the largest monthly volume of wind energy (107 GWh) constrained off the GB electricity system, and the largest monthly amount paid for wind farms not to generate (£8.7 million), as can be seen in the following chart, which also shows the steadily increasing trend over time.
Wind farm constraints are essentially caused by difficulties in exporting excess wind electricity generated in Scotland. In March 2014 approximately 12% of the potential wind power output of large Scottish grid connected wind farms had to be constrained off the system, thus incurring costs to the consumer in the form of constraint payments. Griffin wind farm showed the greatest reduction in output with more than 60% of its potential output in the month constrained off.
The average price charged by the wind farms to reduce output was £80/MWh. This is almost double the lost income (a price of about £45/MWh to compensate for lost subsidy would be justifiable in the current market arrangements).
It is these excessive prices that Mr Fallon sought to address with his letter. But the industry does not appear to have taken any notice whatsoever, and while we understand the reluctance of government to intervene in the setting of prices in any part of the market, it is clear that wind power constraints are a special case, arising from the market distorting effects of state income support subsidies to renewables, and that consequently the time for vigorous government intervention has now come.
The scale of the growing threat to the consumer interest can be appreciated from the following charts, which record quarterly total wind power constraint costs and volumes.
The first quarter of 2014 has seen £13.7 million paid to wind farms to reduce output, which is a record in itself, but also confirms concerns that there is a trend towards consistently high constraint payments over the last year.
We are aware that the wind industry and some renewables sector journalists are still attempting to conceal the scale of this market abuse, by claiming that wind power receives less in constraint payments than conventional generation. This is untrue, and fails to convey the significant distinction between payments to conventional generators to START generating (in the event of unexpectedly high demand, for example), and additional payments to wind power to STOP generating. As we explained in a letter to The Times in January:
Conventional generators (coal and gas for example) are not paid extra to stop generating. Indeed, because of avoided fuel consumption they pay back to the system when constrained off. Wind power, on the other hand, loses subsidy when it is told to stop generating, and therefore asks for compensation, and in practice wind farms ask for compensation well in excess of the lost subsidy. This excess is clearly an abuse of market power and should be investigated by the regulator, Ofgem.