Wind Lowers the Price of Electricity, But . . .

By Editors

To illustrate how windmills are reducing the price of energy in Germany, CleanTechnica presents the above chart. It shows how the addition of more wind to the grid has the effect of cutting out more expensive forms of generation and lowering the price - temporarily at least.

The top graph shows marginal pricing on a grid that is powered by 500 megawatts (MW) of “old gas” (boilers without combined cycle), 500 MW of “new gas” (combined cycle), 600 MW of coal, 900 MW of nuclear and 500 MW of wind. The horizontal axis separates the different power sources and the vertical axis shows the marginal costs of adding each to the grid. The solid red line shows the price of each whlie the dotted line shows the market-clearing price - i.e., the price paid to everyone, which brings the most expensive supplier into the market while generating profits for all those with lower costs.

Since wind requires no fuel, its marginal costs are zero and it always pays to put it on the grid whenever it is available.  Nuclear's marginal costs are $10 per megawatt-hour (MWh) since the fuel costs are very low. Coal is next at $20 per MWh, new gas (i.e., combined cycle) is $30 per MWh and old gas is the most expensive at $50 per MWh, since natural gas's fuel costs are more expensive than coal or uranium.

In the bottom chart an additional 500 MW of wind have been added to the grid. This brings down the market-clearing price from $50 to $30 per MWh and knocks 500 MW of old gas of the grid.  This is a boon to customers since it brings down the wholesale price - at least temporarily. 

But there are several other considerations that this short-term analysis omits: 

1) Because coal is cheaper than gas, wind replaces gas and it now now becomes economical to burn more coal.

2) Even though the old gas has been taken off the grid, the generators must be kept available since the wind doesn’t blow all the time. This means that sunken costs continue while revenues shrink. This makes gas plants even more uneconomical and pushes the system toward cheaper coal.

3) If you phase out nuclear, which is what the Germans are attempting to do, then you will also be replacing nuclear with the cheapest alternative, coal.

All this describes exactly what is happening in Germany. Wind has made natural gas plants uneconomical and is prompting utilities to burn more coal and even build new coal plants. As nuclear is phased out, the base load will shift even more towards coal.

Thus the chart does not tell the whole story. Although wind may be the cheapest alternative at any given moment, its intermittency disruptis the grid and forces other generating plants to operate uneconomically. The overall result is to raise the costs of electricity.  German customers have already been told that their electrical bills will be increasing nearly 50 percent over the next few years in order to pay for the costs of phasing out nuclear. In addition, the heavier reliance on coal is likely to cancel any improvements in air pollution and carbon emissions.  As a Los Angeles Times analysis put it last week, "The Rise in Renewable Energy Will Require More Use of Fossil Fuels."

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