Energy Payments
This is the first part of a series of blog posts on electricity bills beginning with Energy Payments.
Summary:
- Energy Payments cover costs incurred by generators in power generation e.g fuel.
- Energy Payments were € 1.7 billion in 2010 (poor wind year) and €2 billion in 2014 (good wind year)
- Wholesale prices have had little effect on the increase in Energy Payments since 2010
- Demand has fallen since 2010 but Energy Payments have increased
- Strong wind output leads to higher Energy Payments because of the subsidies it receives
- Strong wind output leads to lower wholesale prices but higher Energy Payments which are reflected in higher electricity bills
- Capacity Factor is a measure of the output of wind in percentages, It indicates how much electricity a generator actually produces relative to the maximum it could produce at continuous full power operation during the same period. So 100% would be where the wind output would reach its maximum every day for a whole year and 0% where there was no wind output for a whole year.
Energy Payments make up a large portion of most electricity bills, sometimes as much as 50%. This covers fuel costs and other costs incurred by generators during the operation of their plant or wind farm. It is paid to generators based on power supplied to the grid. Theoretically, as wind has no fuel cost, energy payments should be lower in a system with wind than one with fossil fuels only. But in reality, wind energy receives a higher payment from the market than fossil fuel sources do and this has driven up energy payments.
2010 was a particularly poor year for wind in Ireland. Capacity Factors dropped to 24%, the lowest its ever been. So this is a good year to use for comparative purposes as nearly all the electricity was generated by fossil fuel and conventional sources.
SEMO's (the market operator) year runs from October to September but we can still use their annual figures as an indication as to what is happening. The 2014 year was a pretty average year for wind with some of the largest and lowest monthly capacity factors but with the largest installed wind capacity on the system to date. When compared to 2010, there were much higher levels of wind penetration in 2014 with an average capacity factor of 29% for the SEMO year to September 2014.
In 2010, total Energy Payments were € 1,752,491,743. In 2014, it rose to € 2,029,397,823, an increase of € 277 million or 15.8%. Average demand dropped by about 2% in this period so this increase is not because we used more electricity. What about the price of fossil fuel ? The price of fossil fuels, mainly that of gas, is one of the biggest drivers behind the wholesale price, so we can use this a good indicator. The wholesale price rose by € 12.28 MWh (23%) between 2010 and 2014 according to the CER (from €52 to €64.28). So maybe the hike in Energy Payments was because of the rise in fossil fuel prices ?
There are 2 issues here:
1) One of the alleged advantages of Wind energy is that it acts as a hedge against high fossil fuel prices. Installed wind capacity increased by around 50% (700MW) in the period we are looking at and as explained capacity factors (i.e. wind output) were much better. The wind industry will argue that wind energy helped to retard the above growth in wholesale prices, due to the high cost of fossil fuels.
2) The highest wholesale price in recent times was in 2011/12 when it hit € 72.72. The following year the price dropped by €7.00 MWh (9%). But Energy Payments did not drop in line with this. In fact, they rose by €191m (coincidentally 9%). So the reductions in fossil fuel prices did not trickle down into less Energy Payments as one would expect. Instead, consumers paid more.
So what exactly is happening here ? Well, we need to take a "birds eye" view. Generation capacity with priority dispatch is increasing (i.e wind), replacing power from other capacity in the grid. But wind energy is a more expensive way to generate electricity due to the REFIT subsidy given on the market price.
So the cost of using more wind energy is an important factor. The variations in the price of fossil fuels has impacted little over the past few years as can be seen below. The cost of adding more wind has more than offset reductions in fossil fuel prices.
In fact, the capacity factor of wind seems to be the single largest driver in the rise (or fall) of Energy Payments. Take a look at the following graph. I have represented all the above factors as percentages to allow comparison, with the highest of each factor since 2010 shown as 100% :
There doesn't seem to be much correlation between wholesale prices and energy payments. But the correlation between Energy Payments and Capacity Factor of wind (output of wind) is striking. So when we get a year with good wind speeds, the electricity bills go up.
There does, however, appear to be a negative correlation between wind output and wholesale prices, i.e. when there is a high wind capacity factor, the wholesale prices comes down (and vice versa). But the Energy Payments go up to pay for the additional wind energy.
And the only thing that matters to consumers is the cost of Energy Payments as we have seen in our bills. It is of little consolation to them that wind energy has lowered the wholesale price when retail prices have shot up.
There are 2 issues here:
1) One of the alleged advantages of Wind energy is that it acts as a hedge against high fossil fuel prices. Installed wind capacity increased by around 50% (700MW) in the period we are looking at and as explained capacity factors (i.e. wind output) were much better. The wind industry will argue that wind energy helped to retard the above growth in wholesale prices, due to the high cost of fossil fuels.
2) The highest wholesale price in recent times was in 2011/12 when it hit € 72.72. The following year the price dropped by €7.00 MWh (9%). But Energy Payments did not drop in line with this. In fact, they rose by €191m (coincidentally 9%). So the reductions in fossil fuel prices did not trickle down into less Energy Payments as one would expect. Instead, consumers paid more.
So what exactly is happening here ? Well, we need to take a "birds eye" view. Generation capacity with priority dispatch is increasing (i.e wind), replacing power from other capacity in the grid. But wind energy is a more expensive way to generate electricity due to the REFIT subsidy given on the market price.
So the cost of using more wind energy is an important factor. The variations in the price of fossil fuels has impacted little over the past few years as can be seen below. The cost of adding more wind has more than offset reductions in fossil fuel prices.
In fact, the capacity factor of wind seems to be the single largest driver in the rise (or fall) of Energy Payments. Take a look at the following graph. I have represented all the above factors as percentages to allow comparison, with the highest of each factor since 2010 shown as 100% :
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| Energy Payments provided by SEMO. Wholesale Prices provided by CER in PSO Levy papers. Capacity Factors and Installed Wind Capacity provided by Eirgrid. |
There does, however, appear to be a negative correlation between wind output and wholesale prices, i.e. when there is a high wind capacity factor, the wholesale prices comes down (and vice versa). But the Energy Payments go up to pay for the additional wind energy.
And the only thing that matters to consumers is the cost of Energy Payments as we have seen in our bills. It is of little consolation to them that wind energy has lowered the wholesale price when retail prices have shot up.
Any thought/comments on the Greenwire submission to the Green paper where they quoted a capacity factor of 40% for the Midlands-surely very optimistic considering offshore wind has never been able to achieve anything near this.See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/337684/chapter_6.pdf
ReplyDeleteImpossible to get 40% CF in midlands. It is unlikely even on North West coast, which has the best wind speeds, let alone the midlands. The reason the midlands was chosen for the export project was because of the strong grid infrastructure.
DeleteExcellent blog - suggest including an explanation of 'Capacity Factor' at the start of the blog to aid the reader.
ReplyDeleteThanks for your comment
DeleteCapacity factor, sometimes called load factor (factor is the defining word and is not used in any other context.-engineers often just say "factor"-) It is the output of a generator expressed as a percentage of its maximum output. It is usually quoted for a one year period = 8760 hours. Say a generator had a capacity of 1 mw and it ran continuously for the whole year, its factor would be 100%. Its output would be 8760mwh) If it ran @ half load for the same period, its factor would be 50% = 4380 mwh etc etc. The proper way to measure it is its rated capacity X 8760/actual mwh produced. Ireland was giving its wind factor @ 35.5% until I challenged it and they reduced it to 23.5%. for 2010." Window dressing"
ReplyDeleteAll plant will have to be shut down for servicing, no plant has 100% factor over several years. Coal and Heavy oil steam plant will have a factor of about 90%. Peaking plant often as low as 30%. Winter diesel peaking plant can be as low as 4%. However, there is a distinction between dispatchable plant and undispatchable plant. A 4% factor for fully dispatchable plant might make a better contribution to adequacy, than a 50% factor from undispatchable plant. Consider if Ireland had a power generating source capable of providing renewable power without any fossil back-up. But, it stops suddenly without warning for 27 continuous hours on 3 separate periods per year. Its factor is 8760 - (27x3) = 8679 x 100/8760 = 98.9726%. This is higher than anything else, but it will plunge the country into 3 unexpected blackouts three times a year. Capacity factor does not take account of power quality, the issues here are freedom from unexpected and expected interruption, controllability of supply and ability to compliment synchronization (frequency). It a bit like driving a car with a loose obstruction in the carburettor, jumpidy jump kangaroo style. Or a car that will not start 3 morning in a year. Key to this is the term "security of supply"
Capacity credit, also called "firm capacity" or "guaranteed" capacity, is "the amount of other generating plant which can be shut down and replaced with the one being measured without endangering supply". The term originated at a time when all plant was dispatchable and therefore it does not deal with the issue of whether replaced plant is shut down permanently or temporarily . It was assumed that only adequate plant would be kept to ensure supply and a 20% reserve. Remember it is the percentage of the one being measured, not the entire system which it measures. If a 100mw gas plant at is introduced at Wikiville to a system, how much existing plant does it replace as a percentage of 100mw?. Example: 1 mw capacity existing. System demand is (8760 x 1000)= 8760,000 mwh annually. 100mw new plant is introduced on January 1st, at Wikiville. Existing generating capacity of 50x8760 mwh is spared because of the new plant. The credit capacity of the new plant is 50%.
ReplyDeleteExplanation. Without Wikiville other plant would be required to generate 8760.000 mwh, with it, it is only required to generate 8760,000 mwh - ( 8760,000- 8760 x 50) = 9198,000 mwh. 438,000 mwh is saved. Wikitown's potential capacity is 8760 x 100 = 876,000 of which 438,000 is half. The credit capacity of Wikitown is 50%. In the Irish case the potential capacity for wind is 2,000 x 8760 = 17520000, so if we knew what this allow to be shut down, we could calculate its credit capacity. The total capacity is irrelevant. See this link for the German 2005 report at paragraph 7, last sentence. https://www.wind-watch.org/documents/eon-netz-wind-report-2005/
or google Germany 2007 report on wind energy. For every 48,000 mw of wind only 2 mw could be of other capacity could be spared. Hope that enlightens
Hi Val.
DeletePlease forgive my ignorance - you wrote "Existing generating capacity of 50x8760 mwh is spared because of the new plant. The credit capacity of the new plant is 50%".
Can you explain please where the 50 came from.
Thank you.
I wrongly wrote 2007, report above, its the 2005 E.on nertz report on wind capacity credit. Another term used to measure electricity and the one I like best is "contribution to adequacy". This simply measures what contribution to adequacy of supply a particular generator makes. It is very similar to Capacity Credit in that it measures the worth of the generator. It ignores the cost and ethics issues but includes
ReplyDeletedispatchability
Hi Val.
ReplyDeletePlease forgive my ignorance - you wrote "Existing generating capacity of 50x8760 mwh is spared because of the new plant. The credit capacity of the new plant is 50%".
Can you explain please where the 50 came from.
Thank you.
I will deal with the excelent question of Anonymous next, but before I do, I want to correct a mistake in my post of 11th February, 2015 @ 11.18 above on capacity factor. 6th line down, the sentence beginnig with "The proper way to measure it". Now I correct the formula to The proper way to measure capacity (load) factor is the actual annual output of the generating entity in mwh x 100 / (divided by) the rated (name plate) capacity x 8760. This will give you a percentage, my formuly above will give a multiple, which is incorrect, sorry. I feel that if I delete a post it may look look like I am messing. Better correct it.So: On the Isle of Man, a 40 mw open cycle gas turbine is installed on January 1st 2014. By the year end an output of 63,000 mwh is metered out to the grid from it. Its factor is 63,000x100 / (40x8760) = 17.97%. Note in particular that there is no need to know the full capacity of the system to get capacity factor, It could be low like the Isle of Man of high like the British mainland or the USA, It the actual output / full potential output over one year expressed as a percentage. Hope that set the record straight.
ReplyDeleteNext to deal with Anonymous's question. In the interests of clarity I will correct a mistake and then re- publish the posting of 11th February @ 12.42 giving only necessary information. At the 6th line down I wrote "Example 1 mw capacity existing" This was meant to and should have read "1,000 mw capacity existing". I failed to watch my lap top key board.. ------ Note that with capacity factor, all that is measured is what percentage of the generastors potential output was actually produced, no matter what benefit that output was. With capacity credit its the amount of capacity saved that counts. Next I will post it corrected only where errors were made, nothing else.
ReplyDeleteCapacity credit, also called "firm capacity" or "guaranteed" capacity, is "the amount of other generating plant which can be shut down and replaced with the one being measured without endangering supply". The term originated at a time when all plant was dispatchable and therefore it does not deal with the issue of whether replaced plant is shut down permanently or temporarily . It was assumed that only adequate plant would be kept to ensure supply and a 20% reserve. Remember it is the percentage of the one being measured, not the entire system which it measures. If a 100mw gas plant at is introduced at Wikiville to a system, how much existing plant does it replace as a percentage of 100mw?. Example: 1,000 mw capacity existing. System demand is (8760 x 1000)= 8760,000 mwh annually. 100mw new plant is introduced on January 1st, at Wikiville. Existing generating capacity of 50x8760 mwh is spared because of the new plant. The credit capacity of the new plant is 50%.
ReplyDeleteExplanation. Without Wikiville other plant would be required to generate 8760.000 mwh, with it, it is only required to generate 8760,000 mwh - ( 8760,000- 8760 x 50) = 9198,000 mwh. 438,000 mwh is saved. Wikitown's potential capacity is 8760 x 100 = 876,000 of which 438,000 is half. The credit capacity of Wikitown is 50%. In the Irish case the potential capacity for wind is 2,000 x 8760 = 17520000, so if we knew what this allowed to be shut down, we could calculate its credit capacity. The total capacity is irrelevant. See this link for the German 2005 report at paragraph 7, last sentence. https://www.wind-watch.org/documents/eon-netz-wind-report-2005/
or google Germany 2007 report on wind energy. For every 48,000 mw of wind only 2 mw could be of other capacity could be spared. Hope that enlightens
ReplyDelete
Note this exerpt "100mw new plant is introduced on January 1st, at Wikiville. Existing generating capacity of 50x8760 mwh is spared because of the new plant. The credit capacity of the new plant is 50%" Note no one knows how many hours the new plant ran or what its factor was over the year. What we do know is that it saved other plant generating = half (the capacity of the new plant) of what it would have generated without it. The rated capacity of the new plant was 100 x 8760 = 876.000.mwh output per year.. Becuase of it, 50% x 876,000 = 438,000 was spared elsewhere. It is not necessary to know how much total capacity the system has. If I were allowed to supply the USA grid with a steam traction engine burning logs belted to a generator, and its capacity was 10 x 8760, then, if it allowed 2 x 8760 to be saved elsewhere, the credit capacity would be 20%, The formula is 2 x 8760x / 10 x 8760 x 100 = 20% credit capacity. Now if I could paint a rosey picture to illustragte the point.
ReplyDeletePaddy from ireland goes to the Pacific Island of Ponty where a small population live an easy going life. He buys the only local generating station comprising 2 x 100 mw open cycle gas turbines which supply power to the inhabitants from 8 am until 10 pm when everyone goes to bed. Fuel is LPG imported from Oman. He invests in two 25 mw diesel generators and installes them on site on the 20th December 2013. He commissions them on the 1st January 2014. The idea is to diversify the fuel supply to include diesel oil from India. He decides for the first year to run the new plant at full output every day from 8 am to 10pm. At the end of the year he does his fugures. In 2010 he generated x from gas, 2011 = x from gas, 2012 = x from gas, 2013 = x from gas and 2014 (new plant inststalled) y from gas. If x - y = the full generating capacity of the new plant in the period it was required to generate, than its credit capacity is = 100%. Another way to look at it is that if we in Ireland were left a 100 mw wood burning power station by a old benefactor in Dec 2013 and we never got time to use it in 2014 its credit capacity would be zero. If on the other hand we ran it for a few days as an experiment with the local ICA gathering wook in the forest, and we found it saved 4 mwh in the year its credit capacity would be; 4 / 4 x 8760 x100 = .011%. Credit capacity is blind to the use the new plant is put to. Rather it takes is name plate capacity x 8769 and divides it by the capacity saved in mwh, the answer is multiplied by 100 simply to give a percentage. In this way it is the only true measure of the usefulness of any plant. Where 100% security of supply is expected every hour of every day without fail, it measures the real actual contribution. If you needed a car to get to work on all you annual working days without fail and you have a 100% reliable, comfortable economical car to fill that need. If I give you an old clapped out car with a smokey engine to share your travelling needs, the credit capacity of the car I give you is zero. Its no good and you were better without it.
It is important to realise that the electrical system of modern economic entities must supply consumer dcemand every milli second, of every second or every minute of every hour x 8760 hours for ever year , year in year out. Breaks in the continuety of supply are best avoided, but where necessary they must be flagged in advance and the blackout kept short. Many industrial and medical appliances are fitted with no voltage switches. These are engaged when the button is pressed and held in place by an electro magnet against a spring. If the current fails for long enough to allow the spring loaded connection points to disconnect, the machine stops and will not start again until the button is pressed again. This is not the same as having a 5 minute power cut while frying the sausages. You can keep frying when the power comes back on. If a factory is melting aluminium and rolling it into 6 mm plates for supply to companies making shower units and if the power goes off for 3/50th of a second,(3 hertz), the switches go off. Operators must immediately re press the putton before the metal solidifies. If they don't or if the power cut lasts 20 seconds, the metal will solidify and it cannot be got out. You could have to throw out 3 million euros worth of plant. You cannot quantify electrical generating equiptment by the fuel supply, or the potential to provide power. You have to take account of the quality of supply and its ability to continue supplying by default. My glasses are now esential for me to read and see small detail close up. I can see far away perfectly. I need them using the computer, the phone and filling out registers etc. However if I cant find them, life goes on. On the other hand I also need my heart. The difference is that it must operate in default. If it misses 5 beats in a row, I won't need my glasses for quite awhile. If we decide to go for a now and again (hit and miss)electrical system, that is OK. But I will buy a generator and intel will depart for Poland. It is for this reason that wind need 100% back up from fast acting gas plant. Base load plant takes 9 hours to start up. So to sumarise: Our government are forcing a scam on us and they are using our ignorance to to it. If they did the same with banking, what would happen? I will post on a later topic here
ReplyDelete