By Paul Homewood
Further to the post on constraint payments, it is worth reading John Constable’s excellent explanation below.
It ha\s often been claimed by the wind lobby that gas generators are paid for constraint, so why pick on wind farms? John has the answer:
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 fossil-fuelled 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.
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 (prior to 1 August 2015) 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.
John’s full analysis is here.
The important point he stresses is that all generators receive the income for the electricity they have contracted to supply, even if they switch off at the request of the grid. For a gas generator, this means they still get their income, but don’t have to pay for fuel. They are therefore more than happy to pay the Grid to switch off.
Wind farms are the opposite. If they switch off they lose their subsidies, which are payable over and above the market price they will receive anyway.
For those not familiar with John’s Renewable Energy Foundation, it provides a wealth of data on renewable energy generation, drilled down to the individual generators themselves.
Bookmark his site here:
