Sunday, 27 December 2015

Wind Energy and Wholesale Price - Part 2

Wind Energy is Not Reducing the Wholesale Price of Electricity

This article compares the impact of wind on the wholesale cost of electricity in the years 2010 and 2015. The results show that the price of gas remains the single biggest influence on wholesale electricity prices in Ireland, while wind energy has very little effect, if any.

Energy costs
Constraint costs
Total Wholesale Costs

Figure 1: Wholesale Electricity Costs for Irish Electricity Market : 2010 and 2015

The Irish electricity market year runs from October to September.  The wholesale price of electricity is made up of energy payments and constraint payments (I'm excluding capacity payments because that is influenced by the number of generators in the system so will distort comparisons between years). We can see from the above diagram that wholesale electricity costs were higher in 2015 than 2010 by about 7%. 

Electricity Demand was still somewhat higher in 2010 as the effects of the recession had not fully bottomed out at that stage. Also, the very cold winter of 2009/10 increased peak demand for that year. Yet, wholesale prices were still lower in 2010, which as we shall see was likely due to lower average gas prices.

Figure 2: Electricity Demand in Ireland

The Impact of Gas Prices on wholesale price

The National Balancing Point, commonly referred to as the NBP, is a virtual trading location for the sale and purchase and exchange of UK natural gas. The Irish electricity price normally follows the NBP (the green and purple lines below) :

Source : European Commission

The Irish wholesale electricity price generally follows the price of gas because gas generators 
are normally the last generators to be called on after wind, coal and peat as explained in a 
previous blog article.

The NBP i.e. price of gas in the UK, in the latter part of 2015 had dropped to 2010 levels :

• European hub prices showed a slightly decreasing trend as low oil prices, steady LNG supply and increasing pipeline imports put downward pressure on prices. Gas prices have reached new lows. Excepting the temporary price drop in the summer of 2014, the average NBP price in October 2015 was the lowest since 2010 (European Commission).

So gas prices were similar in both years but 2010 had lower average prices over the whole year : 

The above graph declines sharply at the end (not shown) as gas prices fell further in September and October of 2015. So this leaves us with slightly higher wholesale prices in 2015 when compared to 2010 and explains Figure 1. But what about wind energy ? 2010 was a bad year for wind and haven't we had much more wind energy since then ?

Wind Energy

By the end of 2010, according to the SEAI, there was 1,440 MW of installed wind capacity. By the end of 2015, there was roughly 2,300MW. So we have had a 60% increase in wind farms between the two years. The Irish Times reported recently that :

Wholesale electricity prices were down 21 per cent in November 2015 compared to the same month last year, or 7.5 per cent when compared with October. Vayu said the drop was attributable to strong wind generation and lower prices for gas.
While Vayu are right about lower gas prices, strong wind generation doesn't seem to make any difference to wholesale prices. If it did, we should see lower wholesale prices in 2015 when
compared to 2010, but instead we see the opposite.

Indeed, it's quite possible that more wind energy contributed to higher wholesale prices because it led to increased reliance on expensive fast acting back up plant that otherwise would be rarely used.


Despite having wind capacity equal to half of our peak demand, we still have an electricity system almost entirely dependent on fossil fuels, mainly gas. These gas generators recover their costs by setting the wholesale price of electricity. Despite large investments in wind energy, Ireland is still exposed to fluctuations in the price of gas in the UK. With gas prices at their lowest since 2010, we should be availing of cheap electricity. Instead, wind energy is still receiving a fixed price above the low wholesale prices keeping electricity prices higher than they should be.


  1. This comment has been removed by the author.

  2. I deleted the post above, because I discovered it was much older than I thought when posting it. Sorry! In regard to the main article, it can be seen that if a an economic entity (country) has no wind at all installed, its competitiveness is in line with fuel prices to the degree that fuel is a factor of production. Its costs rise and fall in line with everyone else. If it has wind in significant amounts and if that wind delivers power (a very big if), Its energy costs are artificially pegged to wind. (fixed). Energy intensive industries will dwindle and so will the material of production if produced locally. Not only was it a lie that wind would cause electricity prices to fall, but it was a lie that fuel prices would rise due to scarcity. If my figures are correct, and I have dusted them with a sprinkling careful intuition. German, British, Danish and Irish industry will take a severe hit in 2016. About the only saving thing is that opponents have made headway in alerting the public. Steel is required in a variety of grades, from mild steel, cast iron, tool steel, various grades of stainless steel, alloy steel and a variety of special steels with particular mechanical and weld-ability properties. Heat treatability is important. Then there is aluminium, copper, brass etc. Usually the higher the grade, the less is required, but it takes more electricity to refine it. If these get scarce, then how will the machines, cars, implements used in our medical, surgical, engineering, agricultural. products be obtained. Policy makers probably overlook this or assumed other countries would step in to supply from abroad. But products like steel must be certified to a high standard. There can be no air holes, blemishes, fractures, hard spots in soft steel to damage tools. Will metal from India or China meet these standards? Remember transport costs. Failures can lead to expensive litigation. Taking everything into account, policy makers should be worried. I see the GMB Union now worried that wind can't deliver, that is a change. Watch the economic forecasts for the UK for 2016.

  3. Sean O'Dubhlaoigh30 December 2015 at 21:55

    Adding capacity is not the same as adding output . When it comes to wind layout and location of the wind farm determines output. There are 2 things that could be happening here . One poxy layout leading to high output losses due to wind wake etc. Two output losses due to wind turbine ageing could be higher than generally accepted. Curtailment should not be a major impactor on wholesale prices currently .But one thing is sure adding capacity without ensuring that this capacity is capable of giving output at a reasonable capacity factor is crazy. The unique Irish layout separation wind turbine distance , 500 meters, could be keeping output at a much lower level than Denmark . Which has a much lower capacity factor than Ireland . The lads really know what they are doing don't they?.
    The whole wind program should be abandoned immediately. An expert on the Danish wind program expressed surprise to me at the low level of actual output being added given the level of capacity increase in Ireland.