A headline in the Times today claims windfarms get “paid Â£10,000 a day to sit idle”, leading consumer group Uswitch to call for greater transparency on so-called constraint payments for wind. But does it really cost that much to switch turbines off, and should we be worried about this as the UK continues to expand its wind generation capacity? We take a look at how the payments work – and how much they cost consumers.
Paying generators to switch off
Demand for electricity is much higher at some times of day than others – normally peaking between 5pm and 7pm during the week as people travel back from work and make dinner while putting the washing on. The rest of the time, demand is much lower.
But as electricity can’t be stored in large quantities, the National Grid has to request generators to step up or decrease the amount of electricity they produce to balance supply and demand. It pays generators compensation – known as constraint payments – when they have to reduce their output.
To decide who gets the payments, National Grid receives bids from generators outlining how much they want to be paid to increase or reduce their generation. National Grid generally accepts the lowest bid to minimise the cost – which is passed on to the consumer.
The Department of Energy and Climate Change (DECC) says National Grid paid Â£324 million in constraint payments to generators in 2011 to 2012. This only added ” a few pence a year on a typical electricity bill”, according to National Grid.
Part of the reason constraint payments are necessary is because of intermittent electricity sources – like wind.
Windfarms and constraint payments
Between 2011 and 2012, National Grid says constraint payments to windfarms were just over ten per cent of the total amount paid to all generators – about Â£34 million.
Windfarms produce less than five per cent of our electricity so the payments they are getting are out of proportion to the amount of electricity they generate.
This is because the grid relies on old infrastructure which absorbs electricity from coal and gas plants more easily than from wind, according to renewables supplier Good Energy. This makes it easier to switch off the wind supply and keep the grid functioning rather than reducing electricity supply from coal or gas.
This makes windfarms a better choice for National Grid when choosing which power plants to turn off when there is oversupply – and renewables trade association Renewable UK says this means they get proportionately more constraint payments.
Â£10,000 to switch off windfarms
But where does the Times’s Â£10,000 figure come from? It says “four wind farms in total off the south east coast received payments amounting to Â£10,000” on 30 January this year – which seems a lot.
National Grid tells us it thinks the numbers originate from the Renewable Energy Foundation (REF), a group which campaigns against wind power.
As this table shows, REF’s data shows all windfarms off the south east coast received constraint payments of Â£10,627 on the 30 January.
Source: Renewable Energy Foundation Balancing Mechanism Wind Farm Constraint Payments on 30 Jan 2013
A large part of the reason the payout was so high that day was because London Array negotiated a much better price to reduce its generation than the other windfarms: Â£711 per megawatt hour.
National Grid generally accepts the lowest bid. But sometimes constraints such as power plant size and how easy it is to get the electricity from where it’s generated to where it’s needed on the grid mean it has to accept the cheapest offer that still allows the grid to function.
We’re waiting to hear back from London Array on how it negotiated the payments.
It’s worth pointing out, however, that a Â£711 constraint payment is considerably higher than the average price per megawatt hour for constraint payments since May 2010, which is Â£169, according to REF.
The way that constraint payments are structured means we could end up paying more in as more windfarms are built. That assumption is based on the idea that we continue to use electricity in the same way, however.
There are moves afoot to make electricity use more effective. For example, new technologies are being piloted to help reduce constraint payments by spreading out the UK’s electricity usage so that it’s not concentrated in peak periods.
One way of doing this is by installing smart meters which can turn on things like washing machines when there is plenty of electricity available to the grid or when demand is low – meaning windfarms don’t have to be constrained as much.
Trials are underway to see how much households can save from doing activities like washing when it’s windy . Carbon Brief previously calculated that using appliances when windfarms are producing more energy could save households about Â£100 a year. It might also help to reduce constraint payments, as demand would rise as the wind picks up.
Renewable UK says:
“The faster we change our habits, the lower our bills will be – just by being a bit more aware of how and when we use the electricity we’re generating, to make the most of it.”
So using electricity more smartly could be the best way to ensure the effect of the payments on household bills is limited as the UK builds more windfarms. That will be key to helping the UK avoid any other Â£10,000 days.
Update 07/03/2013 11:30
London Array has got back to us saying it got a higher constraint payment because the windfarm isn’t fully operational yet. It’s due to be completed by spring in 2013. It says:
“Constraint payments reflect the costs and impacts of being called-off. London Array is currently undergoing commissioning of its turbines and is not yet fully operational. During commissioning the impacts, costs and risk of being called off is much greater than during commercial operation.”
This means it got a higher price per megawatt hour for being called off than completed windfarms running at full capacity.
Optimistic demand control
Energy academic, Dr David Toke, has published an interesting contribution to the debate over constraint payments. In a detailed blog, he argues most of the coverage is guilty of presenting an overly optimistic view of the effect smart metering will have on demand.
This is particularly problematic because the large fossil fuel suppliers which get a much larger portion of the constraint payments than windfarms currently don’t have any incentive to influence demand rather than taking the payments. His blog says:
“the electricity companies are likely to make much more money out of selling electricity generated by their power stations (or in receiving payments for their power plant NOT to produce energy) rather than making money out of saving supply costs by shifting demand.”
He argues for new regulation to prioritise demand-shifting, with green NGOs better understanding the situation and campaigning for the changes as a necessary first step.