Renewable Energy Foundation

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Constraint Payments: Misunderstandings and Misrepresentations

REF was the first organisation to draw attention to the excessive prices demanded by windpower to reduce output (constraint payments), and the resulting publicity is in part responsible for the fall in prices, though these are still, in our view, excessive.

The wind industry has responded to this criticism by attempting to confuse the public with claims that other generators are paid more to be constrained off. This is untrue, but unfortunately was made the central argument in a piece in the trade journal, Utility Week:

The online article now carries three responses, one from REF explaining the errors in the article, one from Mr Colin Gibson, a former Power Networks Director for National Grid, and one from Scottish and Southern Energy (SSE), which is amongst the largest recipients of constraint payments through its wind farms (for example at Dalswinton, Gordonbush, Clyde, and Griffin), though, to its credit, SSE windfarms also asks some of the lowest constraint prices.

The text of REF's letter follows:

Letter to the editor: Only wind is paid to do nothing

Dear Editor: Utility Week's article misleadingly implies that generators other than windfarms are routinely "paid to do nothing". This is incorrect. Unlike wind, conventional generators are not paid extra when constrained off, but instead pay National Grid (because of avoided fuel cost).

The article suggests that in 2012/13, £162 million was paid to all generators not to generate, with only 4 per cent going to wind. However, Utility Week has conflated a) payments to conventional generators to increase output, and b) payments to wind to reduce output. This is confusing.

Furthermore, the article neglects to explain that its constraint cost figure consists of direct costs (including payments to wind) and indirect costs (confidential constraint contracts - some with windfarms, intertrip contracts, and the costs of replacing the constrained-off wind energy beyond a grid constraint). The conclusion that 4 per cent of the payments go to wind is incorrect since the full cost of constraining wind off is necessarily much larger.

Utility Week claims that the £7.7 million (actually £8.2 million) paid to wind power in August 2013 to reduce output was "compensation for the 91GWh they could not sell". However, wholesale income is not lost; constraint payments (over)compensate for lost subsidy. A ROC was worth £42 in 2012 while the LEC was worth about £5. Consequently, onshore wind in 2012 could defend a compensation rate of £47/MWh. In fact, wind charged an average of £113/MWh.

Average wind constraint prices have fallen to about £88/MWh in the calendar year 2013, but are still significantly higher than the lost subsidy, with a large range from windfarm to windfarm (£72-£200/MWh). This is not in the consumer interest and suggests abuse of market power.

Contrary to the implication of Utility Week, REF has not misrepresented the constraints data. Your simplistic analysis is flawed since it covers up growing volumes of constrained wind energy, excessive wind constraint prices, and the increasing direct and indirect costs of constraining wind.

Dr John Constable (director)
Dr Lee Moroney (principal analyst)
Renewable Energy Foundation

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