Grid Balancing Costs Sky-Rocket in the UK, due to Increased Wind and Solar

An interesting article from Elexon about the costs incurred for balancing the grid

JANUARY 20, 2022

By Paul Homewood

The Electricity System Operator (ESO) plays an essential role in balancing supply and demand using the Balancing Mechanism (BM). Matching supply and demand requires payments to be made between the ESO and participating consumers and generators. Consumers and generators submit prices for volumes of energy they can provide within a half-hour period (Settlement Period) to balance the system. In this Insight article, analyst Angus Fairbairn looks at balancing costs of ESO since 2015.

System Operator role is becoming more challenging

The ESO role in Great Britain, performed by National Grid ESO, is becoming more challenging and costly. All electricity consumers pay for these costs as part of their bills. In 2020, some contributing factors were the move to a more decentralised system and increases in intermittent generation with a push to a net zero future. The ESO also faced forecasting challenges with changing demand profiles due to COVID-19.

Generation sources used to keep the system in balance

The graph below shows how payments for balancing energy produced from different fuel types has contributed to net balancing costs since 2015. This graph only includes payments for utilised balancing energy in the BM and outside the BM in Balancing Services Adjustment Actions. Additional payments, such as availability fees or start-up costs have not been included.

Net balancing costs were £506m in 2015. The system pressures mentioned above have pushed the net cost in 2020 to £1.3Bn, 67% higher than 2019 (£794m).

image

Net Bid and Offer cashflow

The graph below shows changes in net Bid and Offer cash flow between 2015 and 2020. Bids have a negative volume as they are a reduction in energy on the system. The Bid price represents the amount paid to the ESO by the balancing services provider and therefore the lower the Bid price, the more expensive it is to the ESO and a negative price will represent a payment to a BM Participant.

Bid cashflow is the price (£/MWh) of a Bid multiplied by the volume of the Bid (MWh). A net positive Bid cashflow across a year means more money was paid to Balancing Service providers for negatively priced Bids by the ESO than the ESO received from positively priced Bids.

Prior to 2020, the yearly net cost attributed to Bids was negative. This means more money was received by National Grid ESO for reducing energy on the system than was paid to Balancing Service providers to reduce energy on the system. Balancing Service providers will pay to reduce their generation as they may save costs of operation and/or fuel. They may also pay to consume more electricity.

The negative net Bid Cashflow from Bids reduced the overall cost of balancing the system by an average of £125m per year from 2015 to 2019. This trend significantly switched in 2020 with a positive net Bid cashflow, of £257m being paid from the ESO to Balancing Service providers to reduce energy on the system. This represented an additional 19% of cost on top of Offer costs.

Net positive Bid cashflow means more money is being paid to BM Participants from the ESO than Balancing Service providers are paying to the ESO to reduce energy on the system. Bids which result in payment from the ESO to the Balancing Service provider will have a negative price in £/MWh.

Bids with negative prices usually come from wind generators as they have no fuel costs and will lose payments from their Renewable Obligations Certificates (ROCs). ROCs are paid to certain renewable generators for each MWh of electricity generation delivered to the grid.

The Offer price represents the amount paid from the ESO to the Balancing Services provider. The higher the Offer price, the more expensive it is to the ESO. Offers have a positive volume as they are an increase in energy on the system. Offer cashflow is the price (£/MWh) of an Offer multiplied by the volume of the Offer (MWh).

Yearly net Offer cashflow has always been positive as it is very unlikely for Participants to pay to increase electricity on the system; to consume less or generate more.

Since 2016, net Offer cashflow has been rising. From 2019 to 2020, net Offer costs rose by 23%. As the cost increased for both Bids and Offers, this meant that balancing costs rose by 50% from 2019 to 2020.

image

Conclusions

Expenditure on balancing energy for the ESO has risen significantly in 2020. There has been more expenditure on all Bid and Offer volume with the greatest changes seen in money spent on reducing the energy on the system through Bids. Reducing energy on the system in 2020 came with significant financial expenditure rather than benefit to the ESO. More Bid volume was required, and at a higher price.

Low demand due to the impact of COVID-19, combined with the difficulty in forecasting new demand profiles in 2020 is likely to have increased the need for balancing energy. This looks set to be a short term influence on the system. As lockdown restrictions ease and working behaviours return to normal, balancing the system may become more predictable and less costly.

Significant increases in balancing costs from low carbon sources, such as biomass and wind were seen in 2020. This has been a long-term trend, with the cost of biomass balancing energy rising from 2017 and wind from 2016.

Economic incentives for renewable generation with low fuel and operational costs result in the costs for turning down generation from these sources being more expensive. This was seen with wind Bids where no fuel costs and financial benefits of generating (ROCs) contributed to the lowest (most expensive) Bid prices in February and November 2020.

Increased costs for managing renewable generation looks set to continue with the push to a net zero future. National Grid ESO is addressing these costs with projects like the ‘4D Heat project’ with Scottish and Southern Electricity Networks (SSEN) mentioned in their 5-Point Plan. Also, new technologies such as battery storage) may also provide new tools that help to  integrate wind and other intermittent generation into the system.

https://www.elexon.co.uk/article/bsc-insight-increasing-costs-for-b...

 

The chart is actually highly misleading, because it implies most balancing payments were for natural gas. In reality, payments to gas are to ramp up output when supply is short.

The real takeaway comment is :

 Net balancing costs were £506m in 2015. The system pressures mentioned above have pushed the net cost in 2020 to £1.3Bn, 67% higher than 2019 (£794m).

This figure will continue to rise as more and more intermittent wind and solar generation are added to the grid.

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Comment by Willem Post on January 21, 2022 at 12:11pm

Remember, these ANNUAL additional costs are due to the variations and intermittencies of wind and solar, because the OTHER power plants have to operate far from their more-efficient modes of operation.

When wind and solar were only a very small percent of the electricity loaded onto the U.K. grid, those balancing costs were minimal, sort of “lost in the fog”

When wind and solar became a large percent, those balancing costs became 1.3 BILLION U.K. pounds in 2020, likely even more in 2021, 2022, etc.

Those balancing costs should have been charged to the Owners of wind and solar systems, but, in reality, they are charged to taxpayers, ratepayers, and to government debts.

Those balancing costs are in addition to the various government subsidies, which are also charged to taxpayers, ratepayers, and to government debts.

Now you all are finally beginning to see just how wonderful wind and solar have been for your pocketbook.

I saw this mess coming about 20 years ago, because I have about 40 years experience as an energy systems analyst, but ignorant folks dismissed me.

The Biden fools adding 30,000 MW of very expensive offshore wind, would be a bonanza for Europe, because it will make oodles of money, plus it will saddle a competitor with much higher energy costs.

A master stroke, in deed, and the US is falling into the very expensive, debilitating trap.

“All-in” Electricity Cost of Wind and Solar in New England

 

https://www.windtaskforce.org/profiles/blogs/high-costs-of-wind-sol...

http://www.windtaskforce.org/profiles/blogs/cost-shifting-is-the-na...

 

Pro RE folks point to the “price paid to owner” as the cost of wind and solar, purposely ignoring the other cost categories. The all-in cost of wind and solar, c/kWh, includes:

1) Above-market-price paid to Owners 

2) Subsidies paid to Owners

3) Owner return on invested capital at about 9%/y

4) Grid extension/augmentation

5) Grid support services, including fees for:

 

- Capacity availability (i.e., plants are fueled, staffed, kept in good working order, ready to produce on short notice)

- More frequent plant start-up/shut-down

 

6) Future battery systems

 

Comments on table 1

   

- Vermont legacy Standard Offer solar systems had greater subsidies paid to owner, than newer systems

- Wind prices paid to owner did not have the drastic reductions as solar prices.

- Vermont utilities are paid about 3.5 c/kWh for various costs they incur regarding net-metered solar systems

- "Added to rate base" is the cost wind and solar are added to the utility rate base, used to set electric rates.

- “Total cost”, including subsidies to owner and grid support, is the cost at which wind/solar are added to the utility rate base

- “NE utility cost” is the annual average cost of purchased electricity, about 6 c/kWh, plus NE grid operator charges, about 1.6 c/kWh

for a total of 7.6 c/kWh.

- “Grid support costs” would increase with increased use of battery systems to counteract the variability and intermittency of increased build-outs of wind and solar systems.

 

NOTES:

1) NE wholesale grid price averaged about 5 c/kWh, starting in 2009, due to low-cost CCGT and nuclear plants providing at least 65% of all electricity loaded onto the NE grid, in 2019.

 

https://www.iso-ne.com/about/key-stats/resource-mix/

https://nepool.com/uploads/NPC_20200305_Composite4.pdf


2) There are Owning costs, and Operating and Maintenance costs, of the NE grid

ISO-NE charges these costs to utilities at about 1.6 c/kWh. The ISO-NE charges include: 

 
Regional network services, RNS, based on the utility peak demand occurring during a month

Forward capacity market, FCM, based on the utility peak demand occurring during a year.

 

Table 1/VT & NE sources

Paid to

Subsidy

Grid

GMP

 Added

ISO-NE

Total

NE

Times

 

 

paid to

support

 

to rate

RNS+

 

utility

 

owner

towner

cost

adder

base

FCM

cost

cost

c/kWh

c/kWh

c/kWh

c/kWh

c/kWh

c/kWh

c/kWh

c/kWh

Solar, rooftop, net-metered, new

17.4

5.2

2.1

3.5

20.9

1.6

29.8

7.6

3.92

Solar, rooftop, net-metered, legacy

18.2

5.4

2.1

3.5

21.7

1.6

30.8

7.6

4.05

Solar, standard offer, combo

11.0

6.74

2.1

11.0

1.6

21.44

7.6

2.82

Solar, standard offer, legacy

21.7

10.5

2.1

21.7

1.6

35.9

7.6

4.72

Wind, ridge line, new

8.5

3.9

2.4

8.5

1.6

16.4

7.6

2.15

Wind, offshore, new

9.0

4.1

2.4

9.0

1.6

17.1

7.6

2.25

 

Sample calculation; NE utility cost = 6, Purchased + 1.6, (RNS + FCM) = 7.6 c/kWh

Sample calculation; added to utility base = 17.4 + 3.5 = 20.9 c/kWh

Sample calculation; total cost = 17.4 + 5.2 + 2.1 + 3.5 + 1.6 = 29.8 c/kWh

 

Excludes costs for very expensive battery systems

Excludes costs for very expensive floating, offshore wind systems

Excludes cost for dealing with shortfalls during multi-day wind/solar lulls. See URL

https://www.windtaskforce.org/profiles/blogs/wind-and-solar-provide...

 

“Added to rate base” is for recent 20-y electricity supply contracts awarded by competitive bidding in NE.

“Added to rate base” would be much higher without subsidies and cost shifting.

 

US regions with good wind and solar conditions, and low construction costs/kW, produce at low c/kWh.

NE has poor wind conditions, except on pristine ridge lines, and the poorest solar conditions in the US, except the rainy, Seattle area.

NE has highest on-shore construction costs/kW ($2,400/kW in 2020), produces at high c/kWh

See page 39 of URL

https://www.energy.gov/sites/default/files/2021-08/Land-Based%20Win...

 

 

Maine as Third World Country:

CMP Transmission Rate Skyrockets 19.6% Due to Wind Power

 

Click here to read how the Maine ratepayer has been sold down the river by the Angus King cabal.

Maine Center For Public Interest Reporting – Three Part Series: A CRITICAL LOOK AT MAINE’S WIND ACT

******** IF LINKS BELOW DON'T WORK, GOOGLE THEM*********

(excerpts) From Part 1 – On Maine’s Wind Law “Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine if the law’s goals were met." . – Maine Center for Public Interest Reporting, August 2010 https://www.pinetreewatchdog.org/wind-power-bandwagon-hits-bumps-in-the-road-3/From Part 2 – On Wind and Oil Yet using wind energy doesn’t lower dependence on imported foreign oil. That’s because the majority of imported oil in Maine is used for heating and transportation. And switching our dependence from foreign oil to Maine-produced electricity isn’t likely to happen very soon, says Bartlett. “Right now, people can’t switch to electric cars and heating – if they did, we’d be in trouble.” So was one of the fundamental premises of the task force false, or at least misleading?" https://www.pinetreewatchdog.org/wind-swept-task-force-set-the-rules/From Part 3 – On Wind-Required New Transmission Lines Finally, the building of enormous, high-voltage transmission lines that the regional electricity system operator says are required to move substantial amounts of wind power to markets south of Maine was never even discussed by the task force – an omission that Mills said will come to haunt the state.“If you try to put 2,500 or 3,000 megawatts in northern or eastern Maine – oh, my god, try to build the transmission!” said Mills. “It’s not just the towers, it’s the lines – that’s when I begin to think that the goal is a little farfetched.” https://www.pinetreewatchdog.org/flaws-in-bill-like-skating-with-dull-skates/

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Hannah Pingree on the Maine expedited wind law

Hannah Pingree - Director of Maine's Office of Innovation and the Future

"Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine."

https://pinetreewatch.org/wind-power-bandwagon-hits-bumps-in-the-road-3/

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