Putting paid to the lie that wind energy is a cheap source of electricity

Current wind expansion plans could cost consumers at least €1.1bn through fixed price contracts, constraint payments and additional PSO levy charges. Like so many claims issued by the Wind lobby, it sounded good at the time, but was based on a utopian vision rather than any proper “real world” analysis.

 

There are three elements that relate to wind energy that make up the average electricity bill:

1) Cost of wind power generated – This is paid from the market operated by SEM-O (Single Electricity Market Operator). However, rather than having to compete with other generators in a free market, wind energy gets a fixed price plus a further 15%, in effect a subsidy. In 2013 in the Republic, wind farms received a total of €277 million from the market. This works out at about €174,000 per MW of installed wind. If the plans to install another 2,200MW of wind go ahead, wind energy will cost circa €660 million per year.

2) Constraint payments – These are payments made to wind farms when they produce too much power for the grid to take. Currently, there is a combined limit for wind energy and imported power of 50% of demand at any given time. Exact figures are not made publicly available, but a wind industry representative acknowledged that these payments amount to roughly 39% of total power taken by the grid. Based on this figure, these payments amounted to € 108 million in 2013, an average of € 67,000 per MW of installed wind. But given the limit on wind power that can be taken by the grid, the more wind farms that are built, the more wind power is constrained. This means this percentage could rise to 49% in the future. If the plans to install another 2,200MW of wind go ahead, constraint payments could cost circa €320 million per year.

3) PSO Levy – This is paid mainly to wind farm generators who have a contract with a supplier, like Airtricity, Energia or Electric Ireland. If the contract is not lucrative enough, the wind farm receives a top up from the PSO.

As the CER explain:

The proceeds of the PSO levy are used to contribute to the additional relevant costs incurred by PSO-supported electricity generators which are not recovered in the electricity market, in many cases via contracts that suppliers have in place with electricity generators. So in this case, the electricity supplier receives the subsidised payment for wind energy from the market as explained in Point (1), and pays the wind farm company based on the terms of the contract in place. This wind farm is then further reimbursed from the PSO levy.

The portion of the PSO Levy relating to wind in 2013 was € 51 million. This year it has increased to € 94 million. So the consumer could be paying circa € 190 million per year if the current plans go ahead.

So in total, for 2013, wind energy cost € 436 million. The current plans to install an additional 2,200 MW of wind could result in costs of € 1.1 billion per year to the consumer. In 2013, this equates to roughly €100 per household and business per year, with large industry paying the balance of € 218 million. By 2020, this will rise to €250 per year for households and businesses with large industry paying a whopping €550 million per year. What cost to the economy can be put on the job losses and lost tax revenue when this industry ships out to China and India? There are also many other costs of wind energy, including transmission costs estimated at € 3 billion for Grid 25, and capacity and “security of supply” payments made to keep those fossil fuel generators, that are running less due to wind, financially viable.

But what about the fossil fuel savings?

The claimed fossil fuel savings due to wind energy are disputed by many parties, including Wind Aware Ireland. But as no amount of wind farms can replace a fossil fuel plant in its entirety, these savings are cancelled out by the aforementioned capacity and “security of supply” payments made to fossil fuel generators to keep their “capacity” available when the wind doesn’t blow.

By Owen Martin

References

Dail Eireann Debate 12th May 2009 
SEMO Market Data – data extracted for each wind farm for the year 2013
White Paper Launch, September 2014, leaflet handed out by Val Martin of EPAW – contained a constraint payment figure of 39% accepted by a wind industry rep
CER, PSO Levy Decision Paper 2013 and 2014
Dept of Energy REFIT 2 guidelines 2012