Wind for a Euro
Cost-benefit analysis of wind energy in Ireland 2000-2020 January 2019
Version History Version Date Description Prepared by Approved by V4_0 24/01/2019 Final version Monne Depraetere Oliver Rix Mark Turner
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Mark Turner ([email protected] +44 7584 290310)
Monne Depraetere ([email protected] +44 7733 794211)
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Wind in Ireland 2000-2020: costs and benefits
Baringa Partners LLP is a Limited Liability Partnership registered in England and Wales with registration number OC303471 and with registered offices at 3rd Floor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 2
Contents Executive summary ...... 4 1 Overview of wind costs and benefits ...... 7 1.1 ind in reland...... 7 1. ind enefits ...... 8 1. ind costs ...... 2 Results and discussion ...... 10 .1 er ie ...... 1 3 Other wind benefits ...... 13 .1 educed e posure to olatile fuel prices ...... 1 . oided car on emissions ...... 1 4 Calculating the cost savings and additions due to wind power ...... 15 .1 Cost sa ings due to ind po er ...... 1 . dditional costs due to ind po er ...... 18 Appendix A Modelling methodology ...... 23 er ie ...... PLE S ...... Capacity payment modelling ...... Appendix B List of Acronyms ...... 28
ind in reland : costs and enefits
Baringa Partners LLP is a Limited Lia ility Partnership registered in England and ales ith registration num er C 71 and ith registered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
Executive summary
rom a startin oint of near ero in , ind farm ca acit in t e e u lic of reland as ro n to reac o er . in 18. t is e ected to e ceed .1 . o ut t is into conte t, t e total installed eneration ca acit in toda is around 11 . ind ill contri ute 11 of electricit eneration eac ear – t is is e ui alent to around of total electricit consum tion. nitial fi ures indicate t at in 2018 wind power surpassed 30% of Ireland’s electricit su l for t e first time.
n t is stud , arin a Partners LLP (“Baringa”) as anal sed t e financial im act for end consumers of t e de lo ment of ind eneration in reland o er t e eriod . e a e used our ad anced in ouse models of t e ris electricit mar et to calculate o t e costs and enefits for end consumers ould a e differed if no ind farms ad een uilt. e a e also calculated t e im act of ind farms on car on emissions and fossil fuel consum tion. e anal sis is ased on istorical data for t e ears 17, ile t e ears 18, 1 and are ased on a ro ection, as t e stud as carried out durin 18.
i ure 1 resents a summar of our anal sis of t e total costs and enefits for end consumers of ind de elo ment in reland o er t e eriod . ile ind farms a e increased end consumer costs in some areas, t e a e also resulted in si nificant enefits and sa in s in ot ers.
Our analysis indicates that the deployment of 4.1 GW of wind generation capacity in Ireland between 2000 and 2020 will result in a total net cost to consumers, over 20 years, of €0.1bn (€63 million to be exact), which equates to a cost of less than €1 per person per year1.
1 e total cumulative cost over 20 years of €63 million as di ided and t en di ided t e o ulation of reland in 17 ,7 , , ic as o tained from t e Central Statistics ffice.
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
i ure 1 umulative costs an benefits of win farms for rish consumers 2000 2020 (€bn)
DS3 costs 3 Constraint costs
nominal nominal 2
bn etwor costs
ve) € 1 ES support 0.1 bn 0 EU non compliance (one year) C savings 1 olesale savings 2 et consumer costs, total in in costs an ( ve) savin s ( 3
is total net cost is significantly lower t an the gross cost of €3.3 n. is is due to wind driven reductions in w olesale power prices, savings on capacity payments, and avoidance of EU non compliance costs. ese savings amount to a total of €3.2 n, w ic almost entirely offsets t e additional cost of wind.
side from t e financial costs and enefits, we calculate t at t e deployment of wind generation in Ireland avoids
33 million tonnes of power sector C 2 emissions. e total car on emissions from electricity generation in 2017 was 11.7 t, so a saving of 33 t is e uivalent to almost 3 years of total car on emissions in t e electricity sector today2. 137 of fossil fuel consumption at a saving of €2.7 n. In comparison, Ireland consumed (381 toe) of fossil fuels for electricity generation in 20172, so a saving of 137 is e uivalent to 3 years of current fossil fuel consumption for electricity generation.
It is important to note t at our analysis does not ta e account of t e roader socio economic enefits of wind. or e ample, we ave not included t e enefits of o creation, cleaner air, or t e full societal enefit of lower car on emissions as a result of using domestic wind energy instead of imported fossil fuels.
2 ttps www.seai.ie resources pu lications Energy in Ireland 2018.pdf
ind in Ireland 2000 2020 costs and enefits
Baringa Partners LLP is a Limited Lia ility Partners ip registered in England and ales wit registration num er C303 71 and wit registered offices at 3rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
he remainder of this report is structured as follo s e n lists and e plains the costs and enefits of ind considered in this stud e n 2 discusses the e results of the cost enefit anal sis e n outlines other ind enefits lo er fuel costs and emissions savings e n presents our detailed methodolog
All monetary values in this report are presented in nominal money, unless otherwise stated.
ind in reland 2 2 2 costs and enefits
aringa artners LL is a Limited Lia ilit artnership registered in England and ales ith registration num er C3 3 71 and ith registered offices at 3rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
ve v e n n bene n n e n er ears, ris ind eneration as ro n from er lo le els to ecome a ma or ener source. rom a startin oint of near ero in , installed ind farm ca acit in t e e u lic of reland as ro n to o er . in 18, and is e ected to e ceed .1 . o ut t is into conte t, t e total installed eneration ca acit in is around 11 toda . ind ill contri ute around 11 of annual electricit eneration – t is is e ui alent to around of total electricit consum tion. is as transformed t e ris ener s stem, and as resulted in ot additional costs and enefits to t e ris consumer, ic t is stud see s to uantif .
e 2 n n e 2000 2020
n e n ( ) 1
1 7 8 1 11 1 1 1 1 1 17 18 1 e e e e n n n ene n 2000 2020
e Projection n n 1 1 n ene n
8 1 1 1 1 18
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 7
Note: This section introduces the wind benefits and costs we considered in this study. For a detailed calculation methodology of these costs and benefits, please see Section 4. 2 n bene is section lists t e e financial enefits of ind for end consumers considered in t is stud . ese enefits are uantified in Section . e e ene v n ind farms re uire no fuel to run and t erefore, once uilt, enerate electricit at er lo cost. s a result, ind eneration dis laces more e ensi e electricit sources suc as as or coal fired o er stations or electricit im orts, reducin o er rices on t e olesale mar et. uel costs are an im ortant com onent of electricit ills, dri in direct sa in s for consumers t rou lo er electricit tariffs. en v n ll electricit enerators, as ell as ein aid for t e ener t e roduce, a e istoricall also recei ed a ca acit a ment for ein a aila le to roduce electricit . This strengthens Ireland’s securit of su l . ris ind contri utes to securit of su l it out recei in net com ensation for t is under t e Ca acit emuneration ec anism C . is means t at ind enerators do not enefit from ca acit a ments, ut t e amount of ind ca acit a aila le is used to calculate t e payments that are made to fossil fuel generators. In essence, the greater Ireland’s wind eneration ca acit , t e smaller t e ca acit a ments made to con entional enerators. erefore, t e ro t of ind eneration in reland as resulted in a net ca acit a ment sa in for ris consumers. v e n n n e e EU as committed to ac ie in 1 of final ener consum tion from rene a le sources . reland’s contri ution to meetin t is tar et is set out in t e ris ational ene a le Ener ction lan E , ic is le all indin . Ireland’s e ected failure to reac a 1 rene a le ener consum tion s are ill result in a ro ressi e fine for eac ercenta e oint missed on t e tar et. i en t at ind eneration el s to reac t e tar et and a oid fines, t is re resents a sa in to ris ta a ers and consumers. e a e conser ati el included onl one ear of non com liance costs in our anal sis. Ho e er, if ind o er ad not re iousl een
n t e olesale electricit mar et, enerators com ete in dail auctions to deli er electricit . e ids made enerators reflect to a lar e e tent t eir s ort run mar inal cost of electricit eneration, ic consists lar el of fuel, car on and aria le o eratin costs. n t ese auctions, enerators it lo er mar inal costs ill clear first, and t e o er rice is set t e marginal generator, ic is t e enerator it t e i est mar inal costs t at is still needed to meet electricit demand. ind eneration as a mar inal cost of close to ero and irtuall al a s clears t e auction, reducin t e remainin olumes for fossil fuel enerators, ic results in t e most e ensi e fossil lants not clearin t e auction. s a result, less e ensi e lants are re uired to clear t e mar et, leadin to lo er o er rices. Based on CRU’s 2017 Electricity and Gas Retail Markets Annual Report, in 2017, fuel costs represented 43% of t e total electricit ill for small commercial customers. C U does not u lis t e e ui alent fi ure for retail customers . Historicall under t e Sin le Electricit ar et SE , ind farms a e recei ed ca acit a ments – o e er, t is ca acit re enue as een netted off in t e calculation of S su ort a ments under E , resultin in ero additional cost to consumers. ene a le Ener Directi e 8 EC
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 8
de eloped in Ireland, it would likely take much longer than a single year to make up the shortfall and therefore the fines could occur o er multiple years. n This section lists the key costs of wind for end consumers considered in this study. These costs are uantified in Section 2. ene b e There ha e een two main support schemes for Irish wind generators since 2020 – the Alternati e Energy Re uirement AER and the Renewa le Energy eed in Tariff RE IT . er the course of the AER and RE IT support schemes, Irish wind generators ha e typically recei ed support payments for their output that reflect a premium a o e the pre ailing price of wholesale electricity. This premium is paid y the Go ernment and is reco ered from end consumers through the u lic Ser ice ligation S le y on energy ills and therefore represents a cost to end consumers. n n or sta ility reasons, the All Island power system has to operate within certain operating limits or ‘constraints’. or e ample, one constraint sets a limit on the le el of generation from wind, solar, or imports across interconnectors at any one time. These generation sources are ‘non synchronous’ and this is known as the System on Synchronous enetration S S limit. ther constraints set a minimum safe le el of generation for specific groups of power plants. If these constraints are at risk of eing iolated, the system operator needs to inter ene to turn up or turn down power plants, which comes at a cost. The growth of wind generation has dri en an increased need for these redispatch inter entions, adding to costs. Another set of tools that the system operator uses to manage the power system is called ‘ancillary services’. The current ancillary ser ices scheme in the All Island market is known as ‘DS3’. Under DS3, electricity generators are paid to pro ide ancillary ser ices7 . The growth of wind generation is dri ing an increased need for DS3 ser ices, the costs of which are reco ered from end consumers. e ind farms re uire access to the electricity grid to e port their power. Gi en that wind farms are often uilt in regions that ha e limited grid capacity, and gi en the fluctuating nature of wind in feed, wind generation has resulted in a need to upgrade the electricity grid, resulting in additional costs.
7 ne of the uses of DS3 ser ices is to help manage some of the constraints on the power system, such as the S S limit. In that sense, DS3 ser ices contri ute to reducing constraint costs.
ind in Ireland 2000 2020 costs and enefits
Baringa artners LL is a Limited Lia ility artnership registered in England and ales with registration num er C303471 and with registered offices at 3rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
2 e n n 2 ve v e n n e e e en n ene n n e n be een 2000 and 2020 will result in a total net cost to consumers of €0.1bn (€63 million to be exact). This cost is b e e n e e e en e n n n e n n ext, it equates to less than €1 per person per year
This total net cost reaks down as follows € .3 n wholesale energy cost v n € . n C v n € .7 n avoided EU non com liance with target v n €1. n renewa le su ort € . n DS3 € . n network u grade € . n constraint
e e n bene n n 2000 2020 e ve 2000 (€ n n ) 20 (€bn n n )
8 dditional … costs vs ossil 3 uel
ve) €bn ve) €m nominal 1 .1 n dditional 1 savings vs 8 ossil uel 1 3
1 n v n ( ve) n ( n ( ve) v n n (
8 1 1 1 1 18 holesale savings C savings cumul ES su ort etwork costs Constraint costs EU non com liance one year DS3 costs et consumer costs The net cost of wind has evolved over time see igure . The key trends and drivers over time are as follows
8 The total cumulative cost over 20 years of €63 million was divided y and then divided y the o ulation of reland in 17 ,7 , , which was o tained from the Central Statistics ffice.
ind in reland costs and enefits
aringa artners LL is a Limited Lia ility artnershi registered in England and ales with registration num er C3 3 71 and with registered offices at 3rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
2000 07 Lo levels of ind eneration result in limited costs and enefits. verall, olesale savin s drive a small net enefit of €0.1 n. 2008 13 o er rices increase to an avera e 61 € , u from around 0 €/MWh in t e revious years. is is driven y i er commodity rices and, u to 2010, stron electricity demand. Hi er rices narro t e remium aid to ind farms under t e E and E sc emes, resultin in lo ind su ort costs. n addition, amid i fuel and car on rices, ero mar inal cost ind eneration rovide a do n ard force on o er rices, si nificantly reducin olesale costs. ncludin C savin s and net or and constraint costs, e calculate a total net ind enefit of €0.2 n. 201 to 2017 Lo er commodity rices drive do n t e o er rice to an avera e of €/MWh. is as t e effect of increasin t e su sidy ayments under t e E sc eme and reducin t e olesale cost savin s otential of ind eneration. ncreasin levels of ind eneration also drive u constraint costs. verall, t e total net cost of ind durin t is eriod is €0.7 n. rom 2018 to 2020 mid stron o er rices, ind su ort ayments fall and olesale savin s from ind increase, reducin t e net cost of ind. Ho ever, t is is offset y increasin DS3 costs as i er enetrations of ind ener y need to e accommodated on t e o er system. t is im ortant to note t at 2018 2020 is a ro ection as t is study as carried out in 2018. f t e analysis only included istorical data, 2000 2017, t en t e net cost to t e consumer ould e even less t an t e final result as s o n. ere is some uncertainty it in t e results for t e eriod 2018 2020 – li e any ro ection, t e e act de ree of ali nment it actual outturn is un no n.
i ure 6 s o s t e simulated im act of ind eneration on t e olesale o er rice actual o er prices are significantly lower than power prices simulated under a ‘no wind’ scenario, The effect increases as ind eneration ro s – for e am le, e estimate t at in 2018, ind el ed to reduce o er rices y over 20 .
ind in reland 2000 2020 costs and enefits
arin a artners LL is a Limited Lia ility artners i re istered in En land and ales it re istration num er C303 71 and it re istered offices at 3rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 11
i ure 6 Wind generation and wholesale price reduction vs ‘no wind’ scenario
1 11 1 1 1 1 16 8 1 17 y . 1 1 .6
1 18 reduction power in price vs no wind scenario) 6 8 1 1 1 16 ind eneration (T h)
Wind in reland costs and enefits
aringa artners LL is a Limited Lia ility artnership registered in England and Wales with registration num er C 71 and with registered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
ther wind ene its educed e posure to volatile uel prices ind eneration results in less as fired eneration. er e estimate t at ind eneration dis laces a total of 1 . m E or 1 of natural as urn. is is e ui alent to a out 1 of total estimated as im orts to reland o er t e same eriod. ind farms, ic roduce electricit at a sta le cost, reduce Irish customers’ exposure to the price of gas, which can fluctuate more t an 1 o er time . erall, e estimate t at ind eneration reduces as u in costs in reland a out € . n from to .
e im act on coal urn is lo er t an t at on as, it ind dis lacin a total of 1. m E or 17 et een and . ecause of t e lo er cost of coal eneration com ared to as, coal tends to e dis laced ind onl once most as lants a e alread sto ed eneratin . e estimate t at ind eneration reduces com ined coal and as u in costs in reland a out € .7 n from to see i ure 7 .
o ut t ese fi ures in conte t, reland consumed 81 toe of fossil fuels for electricit eneration1 in 17, so a total coal and as ener sa in of 1 7 is e ui alent to ears of current fossil fuel consum tion for electricit eneration. voided car on e issions s ind as dri en do n as and to a lesser e tent coal urn, car on emissions a e dro ed too. e estimate t at et een and , ind eneration as reduced C emissions in reland a cumulati e million tonnes see i ure 8 . e total car on emissions from electricit 1 eneration in 17 ere 11.7 mtC , so a sa in of mtC is e ui alent to almost ears of total car on emissions in t e electricit sector toda .
tt s .erce.ener ra u natural as n s ot rice 1 tt s .seai.ie resources u lications Ener in reland 18. df
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
igure reland cu ulative uel cost igure reland cu ulative e issions savings wind € savings wind no inal t
. as Coal
1. 1 1 1
Cumul. fuel cost €bn savings, .
u ulative e issions savings t 8 1 1 8 1 1
ind in Ireland costs and enefits
aringa artners LL is a Limited Lia ilit artnership registered in England and ales with registration num er C 71 and with registered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
Calculating t e cost savings an a itions ue to in o e
is section descri es eac of t e cost sa in s and additional costs in more detail t an t e o er ie ro ided in t e re ious section, articularl in relation to t e met odolo a lied to uantif eac one. . Cost savings ue to in o e e cost sa in s due to additional ind o er in reland include reduction in olesale electricit costs reduction in ca acit mar et costs due to t e ca acit contri ution of ind, and a oided EU com liance costs e. . fines .
n t is section e e lain eac of t ese cost sa in s, and our met odolo for uantif in t em.
. . e uction in olesale elect icit costs
ind farms, once constructed, are ine ensi e to run as ind eneration as a lo mar inal cost. ind eneration t erefore dis laces i er cost electricit sources suc as as lants or im orts. is d namic means ind reduces o er rices across t e entire electricit mar et, ic also lo ers end costs for all consumers a detailed descri tion of t is d namic is in endi .
e a e anal sed t e im act of ind eneration on SE and SE olesale o er rices in detail usin our o erful in ouse an Euro ean modellin latform.11 is incor orates a o er lant le el re resentation of t e ll sland mar et, and simulates t eir o eration in t e mar et at ourl ranularit .
s a first ste , e set u our model in ‘ ac cast’ mode to simulate and re roduce istorical o er rices from 8 18 D. is in ol es usin actual outturn alues for e in uts to t e model suc as as, coal and car on rices, o er demand, installed ca acit and ind eneration. nce set u and run in t is mode, our model er closel re licates actual istorical o er rices see i ure .
s a second ste , e assume ind eneration to e ero and rerun t e mar et model to simulate power prices in a ‘no wind’ counterfactual see i ure 1 . o maintain t e same le el of s stem securit , e maintain a similar de rated ca acit mar in su stitutin ind for o en c cle as tur ine C lants. Under t e SE ca acit mar et rules, ind recei es a ca acit credit of a out 1 and C s a ca acit credit of a out . is means t at 1 of ind is re laced
11 e SE o erated as an ll sland mandator ool s ot mar et for ort ern reland and t e e u lic of reland from 1 o em er 7 to Se tem er 18. ne mar et desi n, t e nte rated Sin le Electricit ar et SE , ent li e on onda 1 cto er 18, a in een dela ed from a 18. is more closel inte rates t e ris electricit s ot mar et it t e and continental mar ets, as ell as re lacin t e re ious administered mec anism for ca acit a ments it a ne auction ased ca acit mar et.
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
1 1 1 of C s. e calculate t e sa in s as t e difference in w olesale price in € etween t e two runs, multiplied t e o erall electricit demand in reland.
igu e isto ical an mo elle igu e bac cast and ‘No Wind’ SMP 1 1 orecast 8 8 o ind ac cast
ac cast Historical
, eal
8 1 1 1 1 18 8 1 1 1 1 18
or 18 to , we use our arin a eference Case assumptions1 on capacit mi and t e e olution of demand. or 1 and , we assume t at commodit and car on prices e ual mar et forward prices for 18. or t e ears to 7, a lac of data a aila ilit pre ents us from fundamentall modellin t e w olesale price impact of wind. nstead, we a e deduced a linear relations ip etween wind eneration and power price impact from t e 8 17 ac cast and a e used t is to appro imate t e power price impact and w olesale sa in s of wind for t e earlier period see i ure .
a le 1 presents t e installed wind capacit , wind eneration and electricit demand assumptions we a e used in our modellin .
1 The Baringa Reference Case represents Baringa’s central view on the e olution of t e SE mar et. Under t is scenario, ris and EU o ernments pursue a alanced ener polic , attemptin to meet t e sometimes competin demands of securit of suppl , competiti e mar et structure, and en ironmental sustaina ilit .
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners ip re istered in En land and ales wit re istration num er C 71 and wit re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
a and ind ca acit n ation and tota ct icit d and Wind ca acit Wind n ation ct icit d and a W W W .1 . . .1 . . .1 . . . . .7 . .8 .7 . 1. .8 .7 1. . .7 1.8 . . . 8. 1. . 7. 1. .8 7. 1. . 7.1 1.7 .1 . 1. . . . .1 . . . 7. .8 .1 8. . 7. 8.8 . 8. . . 1 .1 .
.1 11. 1.
d ction in ca acit a t costs
Under oth the historical SE and current SE electricit mar et arrangements, generators can receive pa ments for providing capacit to the s stem. These pa ments are in addition to the revenue that generators earn selling the power the generate. Under oth the historical SE capacit mechanism and the current SE capacit mar ets, R wind farms do not enefit from capacit pa ments.1 However, the s stem operator still ta es the capacit contri ution of wind farms to meeting pea electricit demand into account while calculating the capacit re uirement, which defines how much firm capacit needs to e contracted through the capacit mechanism. This results in a net enefit for customers if there were no wind generators then the capacit re uirement would e higher, resulting in higher capacit pa ments.
1 lthough wind generators receive capacit pa ments, these are su se uentl netted off in the calculation of the S top up pa ment under RE T, meaning that on a net asis, wind receives no capacit pa ments
ind in reland costs and enefits
Baringa artners LL is a Limited Lia ilit artnership registered in England and ales with registration num er C 71 and with registered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 17
e rate at ic ind ca acit reduces t e ca acit re uirement is defined t e ind ca acit credit, ic is around 11 of installed ind ca acit .1 o calculate t e istorical ca acit mar et sa in s of ind under SE , e consider t e counterfactual it out an ind ca acit t is increases the Capacity Requirement and as a result the ‘Annual Capacity Payment Sum (ACPS). e calculate an a era e Ca acit e uirement cost er for eac ear di idin t e C S t e Ca acit e uirement and multi l t is fi ure t e total ind ca acit credit to calculate t e SE Ca acit a ment sa in s from ind. s t e Ca acit e uirement is set for SE ic co ers ot and , e t en reduce t e sa in s ro ortionall usin t e relati e ca acit s are of ind in reland s t e o erall SE mar et to calculate t e sa in for reland s ecificall . Under SE , e assume t at it out ind, t ere ould e a need for ne ca acit uild, meanin t e ca acit rice for t e calendar ears 1 reflects t e cost of ne entr at 7 € ear.1
ore details on t e modellin for ca acit a ments is a aila le in endi .
oid d co ianc costs e EU as committed to ac ie in of final ener consum tion from rene a le sources 1 . Ireland’s contri ution to meetin t is tar et is set out in t e ris ational ene a le Ener ction lan E , ic is le all indin . reland’s failure to reac a 1 rene a le ener consum tion s are ill result in a ro ressi e fine for eac ercenta e oint ic t e tar et is missed. e in estment in ind farms from ill el reland to a oid t ese non com liance costs. n a 1 re ort17, t e Sustaina le Ener ut orit of reland SE estimates t ese com liance costs to e et een € m and €1 m er ercenta e s ortfall on t e o erall indin tar et. ased on SE anal sis, reland is ro ected to reac a rene a le ener consum tion s are of a out 1 in com ared to its 1 tar et . it out ind eneration, e estimate t e s are ould e , i.e. a out 7 ercenta e oints lo er.18 a in a cost er ercenta e s ortfall of € 7. m t e midpoint of SEAI’s estimated cost range), this amounts to a total compliance cost of € m in t e ‘no wind’ scenario. e e act met odolo for calculatin t e non com liance costs is still to e finalised. n our calculation, e a e conser ati el assumed t at t e com liance costs ould e a one off fine for onl , rat er t an an annual a ment until t e tar et is met.
dditiona costs d to ind o e additional costs due to ind o er in reland include ene a le ener su ort
1 e ind ca acit credit c an es sli tl ear on ear, and for 1 it as set at 11 of nominal ind ca acit . 1 See also SE 1 1 ene a le Ener Directi e 8 EC 17 Sustainable Energy Authority of Ireland (SEAI), April 2016: ‘Ireland’s Energy Targets: Progress, Ambition and m acts’ 18 is assumes total ener consum tion in of 1 . ased on t e ris ational ene a le Ener ction lan . e ro ect total ind eneration in to e 11 , or a out 7 of o erall ener consum tion.
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 18
Power plants accommodating the ariability of wind power on the grid (i.e. constraint costs) uilding additional electric grid (i.e. networ costs) Adding more fle ibility and controls to the grid (i.e. DS costs)
In this section we e plain each of these costs, and our methodology for quantifying them.
n a s o t costs
e ha e calculated support costs for wind in Ireland under the AER and RE IT renewables support schemes.
Since AER launched in 1 , si AER competitions were held and currently AER is closed to new entrants. e ha e calculated the costs for AER support payments for wind based on PS le y decision paper documents prepared by CRU, which state the estimated AER support cost for a year and an ‘R factor’ which correct for over/under estimates of the support cost of past years1 . The detail in these documents aries by year and for some years, the R factor is not bro en down between AER and RE IT. In that case, we use the AER RE IT wind capacity to define the R factor split for that year. Prior to 2002 there is no AER cost data a ailable and therefore we estimate costs for those years by assuming that 2000 2001 costs per of installed wind capacity are the same as in 2002.
e ha e calculated the cost of RE IT support for wind based on our modelled output. Up to 2016 17 (the last year where full cost data is a ailable) this closely matches the costs as reported in the PS le y. To calculate the RE IT costs, we first calculate the difference between the RE IT stri e price and the generation weighted average (GWA) price or ‘captured price’ received by Irish REFIT wind generators and multiply this by o erall wind generation to calculate the total wind support payment for that year.
The costs of RE IT also include a ‘balancing payment’ paid to wind generators. The e act treatment of this balancing payment differs depending on when a wind farm was commissioned, howe er for simplicity we ha e assumed a payment le el of . € h for all RE IT wind farms.
The design of RE IT means that as wholesale electricity prices increase, the le el of RE IT top up payments decreases. If RE IT wind farms achie e re enues from the wholesale electricity mar et that e ceed the RE IT floor price, then no top up payments are made under RE IT. This situation arose for many wind farms o er the period 2006 2008 when wholesale electricity prices rose to high le els. In 2008 in particular, the o erall RE IT support cost was close to ero.
Table 2 presents the results of our calculations of wind support costs in Ireland o er the period 2000 2020.
1 In order to calculate the historical AER and RE IT costs for wind, we ha e consulted the following CER CRU publications: CER 021 2, 0 1 1, 0 26 , 0 12 , 061 7, 0710 , 0812 , 0 11 , 101 1, 111 0, 12121, 1 168, 1 61, 1 1 2, 162 2, 172 1, and CRU 18 8.
ind in Ireland 2000 2020: costs and benefits
aringa Partners LLP is a Limited Liability Partnership registered in England and ales with registration number C 0 71 and with registered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
a Wind s o t costs in and 2020 (€m) a ota 1 1 7 7 1 1 1 1 8 8 7 1 1 1 8 71 117 11 18 1 1 7 8 7 7 8 8
Po ants acco odatin t a ia i it o ind o on t id const aint costs
The representation of Ireland in our power mar et model closely replicates the way in which the mar et operates under the SE and I SE structures. Generators are dispatched based on their short run marginal cost ta ing account of start fuel costs, ramp rate, availability, minimum up and down time, heat rate variation, output capacity variation and other technical attributes. Two runs ta e place in the model In the initial unconstrained run, no system constraints are in place and plants are dispatched on a merit order basis. This model run simulates the wholesale electricity mar et price, which is set on an unconstrained basis. In the constrained run, we simulate the actual physical operation of power plants on the system. We have modelled two main system constraints a minimum generation constraint in Ireland and orthern Ireland respectively, and a System on Synchronous
Wind in Ireland costs and benefits
aringa artners LL is a Limited Liability artnership registered in England and Wales with registration number C 71 and with registered offices at rd Floor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
enetration S S constraint across t e ole island . e S S increases raduall from in 1 to in 18 and 7 .
e estimate t e ind constraint costs i.e. t e costs resultin from t e fact t at t e SE o er s stem is insufficientl fle i le to a sor all ind eneration as follo s e run an unconstrained and constrained model for both the backcast and ‘no wind’ counterfactual scenario. n eac case, e calculate t e constraint cost loo in at t e difference in eneration costs et een t e unconstrained and constrained model runs. e t en com are the ‘backcast’ and the ‘no wind’ scenarios in order to determine t e c an e in constraint costs t at can e attri uted to ind. e a e allocated t e constraint costs et een reland and ort ern reland in line it t e ind eneration s lit.
2 ( )
e a e made a i le el estimate of t e additional net or costs incurred due to t e de lo ment of ind ca acit in reland since . e studied t e net or ca ital e enditure Eir rid et een and 18. e t en assumed t at t is cost is entirel attri uted to t e of rene a le ca acit added durin t at eriod. is is a conser ati e assum tion as, in realit , art of t is ca ital e enditure ould not e related to connectin t e rene a le ca acit , suc as on oin u rades and rene al of t e net or infrastructure. Usin t is assum tion, e t en estimated t e net or e enditure re uired er of rene a le ca acit added.
or eac ear from to , e calculate t e annual ind ca acit additions and multi l t is t e a era e net or e enditure er . is annual rid u rade cost is t en s read across a ear eriod calculatin a ear annuit at a discount rate of . ased on allo ed rate of return set t e Commission for e ulation of Utilities, C U . is ali ns t e costs it t e enefits, ic ill still e accrued in t e future.
e a e assumed t at rior to , t ere ere no si nificant additional net or costs as a result of ind ca acit .
2 m ( )
e DS Deli erin a Secure Sustaina le Electricit S stem ro ramme as esta lis ed Eir rid and SONI to ‘meet the challenges of operating the electricity system in a safe, secure and efficient manner ile facilitatin i er le els of rene a le ener ’. e aim is to ensure t at t e SE s stem can o erate at i er S stem on S nc ronous enetration S S le els of u to 7 . it ind ein t e ma or factor e ind an increase in non s nc ronous eneration, a lar e ortion of t e costs of t is ro ramme can e attri uted to t e ro t of ind eneration t e redominant rene a le electricit source in reland .
or sta ilit reasons, t e ll sland o er s stem as to o erate it in certain o eratin limits or ‘constraints’. For example, one constraint sets a limit on the level of generation from ind, solar, or im orts across interconnectors at any one time. These generation sources are ‘non synchronous’ and this is known as t e S sten on S nc ronous enetration S S limit. t er constraints set a minimum safe le el of eneration for s ecific rou s of o er lants. f t ese constraints are at ris of ein iolated, t e s stem o erator needs to inter ene to turn u or turn do n o er lants, ic comes at a cost. e ro t of ind eneration as dri en an increased need for t ese redis atc inter entions, addin to costs.
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 1
e have used the budget for DS services from 1 as set out by Eir rid and SONI, as shown in Table . 1 e have assumed that the budget for 1 € m reflects the cost of ancillary services excluding wind. This is because 1 precedes the start of the effort to increase the SNS level. e then assume that the increase in budget from € m to € m in is driven by the effort to increase the SNS limit to 7 and therefore by wind. e have allocated the DS costs between Ireland and Northern Ireland by using the wind generation split.
20 2020 20 20 20 20 20 2020
DS budget €m 7 11 1 1
1 EirGrid and SONI, July 2017: ‘Consultation on DS System Services Enduring Tariffs’, DS3 System Services Implementation ro ect
ind in Ireland costs and benefits
aringa artners LL is a Limited Liability artnership registered in England and ales with registration number OC 71 and with registered offices at rd Floor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
m
arin a as develo ed an in ouse a an EU o er mar et model coverin Ireland, Great ritain and most countries in Euro e for t e ur ose of o er mar et studies. e model sits it in LE OS, a t ird arty commercial soft are roduct t at is idely used in t e o er and utilities industry for mar et rice ro ections, asset dis atc modellin , net or analysis and ot er ur oses. LE OS is also used y t e SE e ulatory ut orities, includin t e C U.
e arin a an EU model ta es ey in uts and scenario assum tions suc as ourly demand rofile, commodity rices, lant uild and retirement and ourly ind and solar rofiles, and as detailed re resentations of enerator tec nical arameters and interconnection et een countries. e model en ine carries out least cost o timisation to roduce ourly dis atc for t e enerators and ourly rices for t e mar ets ta in full consideration of t e o erational constraints ram rates, start time, availa ility etc. .
e re resentation of Ireland in t e model closely re licates t e ay in ic t e mar et o erates under t e I SE structure. Generators are dis atc ed ased on t eir s ort run mar inal cost, ta in start fuel offta e, ram rate, availa ility, minimum u and do n time, eat rate variation, out ut ca acity variation and ot er tec nical attri utes into account. o runs ta e lace in t e model. In t e unconstrained run, no system constraints are in lace and lants are dis atc ed on a merit order asis. In t e constrained run, t o system constraints are modelled: a minimum eneration constraint in Ireland and Nort ern Ireland res ectively and a System Non Sync ronous enetration SNS constraint across t e ole island.
LE OS is a i ly advanced mar et modellin tool, incor oratin a num er of a roac es to t e modellin of interconnected mar ets, and a num er of advanced ricin al orit ms ran in from mar inal cost ricin t rou to ame t eory a roac es. It is de loyed orld ide y ener y com anies, investors and system o erators. It as een used in t e ll Island odellin ro ect to su ort t e develo ment of t e SE , and y t e e ulatory ut orities to estimate mar et o er and determine t e ricin of Directed Contracts22 ic ES , it t e lar est eneration ortfolio, is re uired to sell.
LE OS simulations are ased on a mat ematical ro rammin formulation of o er mar et dynamics. LE OS a lies linear and mi ed inte er ro rammin solution tec ni ues to determine t e dis atc and ricin outcomes, ta in full account of s ort term dynamic constraints includin ram rates and min on off times. is a roac rovides results t at fully ca ture t e com le ity of o er mar ets and allo s t e user to analyse fundamental issues suc as nodal ricin , ydro
22 Directed Contracts are financial contracts for difference CfDs ic allo su liers and enerators to ed e a ainst future o er rices.
ind in Ireland 2000 2020: costs and enefits
arin a artners LL is a Limited Lia ility artners i re istered in En land and ales it re istration num er OC303 71 and it re istered offices at 3rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 23
modellin , rofit tar etin and strate ic e a iour. t is also conce tuall similar to t e a in ic t e mar et dis atc soft are or s.
n o er ie of t e model is s o n in i ure 11.
arin a as confi ured a model of t e ll sland mar et from 17 t rou to ased on t e RAs’ validated dataset . Some of t e e modellin features are descri ed elo .
m
Demand is re resented at ourl ranularit . Hence, t ere are 8,7 settlement eriods er ear, it demand ro ected from actual istorical ourl data to , usin ot ea and ener demand ro t forecasts. Demand is modelled on a station ate sent out asis.
m
e model aims to dis atc lant in suc a a t at eneration costs are minimised o er eac o timisation ori on ours lus a our loo a ead identical to SE mar et dis atc soft are . n t e alidated Dataset eac enerator as a multi art eat rate cur e. is is com rised of a no load cost, and a num er of incremental eat rates ic a l o er different tranc es of t e generator’s capacity. The shadow price is calculated based on s ort run mar inal costs S Cs , and is set t e incremental eat rate of t e mar inal enerator includin t e full ass t rou of t e re ailin s ot fuel and s ot EU car on rices. is is consistent it t e a roac in t e SE radin and Settlement Code SC .
e calculation of t e outturn rices for SE includes a calculation of u lift, usin an im lementation of t e al orit m as u lis ed in t e SC. n u lift com onent is added in eac eriod to ensure
e s ma e a aila le a u lic ersion of t eir SE LE S forecast model. is is inde endentl u dated and alidated inde endent consultants on a re ular asis. e alidated model is used t e s to fulfil se eral re ulator re uirements, includin t e calculation of Directed Contract rices.
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
that each generator recovers its start up and no load costs (i.e. is ‘made whole’) over the period in which it operates. Hence, in each hour the model derives a marginal cost, an uplift payment and system marginal price S .
The new ntegrated Single Electricity ar et SE arrangements began on 1 ctober 18, and so for the final two years of our analysis, we have changed some aspects of our wholesale electricity mar et modelling approach in order to reflect the mar et design.
n accordance with the principle that the mar et will continue to be based on transparent centralised trading arrangements, least cost dispatch of total system load and centralised unit commitment, we have assumed that the SE energy mar et functions as a ‘deregulated pool’ with firm day ahead pricing.
Under the simple or bloc bidding formats in the SE day ahead mar et, generators bid either a simple price uantity bid or potentially bid for variable levels of output over different periods. These bidding regimes differ from the previous SE regime in that generators internalise technical uplift start up and running costs in their bids at levels they themselves choose, as opposed to the previous e post algorithm calculation.
Recovery of generator start and no load costs in the SE was ensured via an uplift mechanism. n the SE this uplift component often formed a significant portion of the power price, especially in certain hours. n SE , generators have to internalise their start costs into bids into the EU HE A day ahead mar et coupling algorithm.
n line with the lac of bidding restrictions in the e ante mar ets under SE , we assume that participant bids and offers in the day ahead mar et are no longer restricted by a idding Code of ractice. This means that, under SE , generators can bid above the price re uired to remunerate both their short run marginal cost and technical uplift during periods of system tightness. This additional uplift above generators short run marginal costs and technical uplift we describe as ‘scarcity rent’. We have modelled ‘scarcity rent’ as a function of the capacity margin in each hour.
All thermal plant on the system are modelled with annual maintenance rates and forced outage rates. The scheduling of maintenance is through a onte Carlo approach to determine an optimal scheduling, whilst outage patterns are applied randomly. These parameters also feed through to the capacity payment modelling.
lant dynamic constraints are also fully ta en into account in the model. These are parameters that affect the dispatch of the plant and include minimum stable levels, minimum up and minimum down times, and ma imum ramp rates.
eat plant are assumed to be constrained to meet annual minimum fuel burn commitments, e uivalent to an 8 load factor, with optimal economic dispatch where appropriate above this level. The wind plant are modelled by allocating installed capacity to one of twelve geographic regions in Ro , and one ind region, each of which are assigned separate load factor profiles derived from historical data. These represent independent but correlated wind patterns at an hourly granularity. The resulting volatility can affect the dispatch of thermal plant.
ind in reland costs and benefits
aringa artners LL is a Limited Liability artnership registered in England and ales with registration number C 71 and with registered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
m
he reservoir hydro units have a limited monthly energy profile, and the model will dispatch this energy according to prices within the month. he profile is ept constant for each river system over the scenario period.
umped storage plant will operate ased on the day night price differential and su ect to the technical constraints of the plant (pumped load, pumping efficiency and head and tail storage capacity).
as fired generators in the epu lic of reland have the option of uying annual, monthly, or daily gas capacity. We assign assumptions on this for each gas fired plant in the market, based on the RAs’ validated LE S model, and ased on the load factors of plant in our modelling. We assume that plant uying annual gas capacity would reflect this as a fi ed cost in formulating their offers to the SE capacity auction for elia ility ptions. lant uying daily gas capacity are assumed to see to recover their varia le gas capacity costs in the energy mar et.
he SE LE S model released y the s contains a simplified representation of the mar et. We have used this as a starting point for modelling the SE and then added a full representation of the mar et including fuel prices and assumptions on the evolution of the plant mi . he model simultaneously optimises across oth mar ets in a single step. his ensures that the operation of each mar et is consistent and that the flows through the two interconnectors represent the most economically efficient solution. m m
m m m
he SE design included a separate Capacity ayment echanism (C ). his was a price ased mechanism, designed to incentivise a level of capacity surplus sufficient to meet the security standards in and . t provided generators with an additional revenue stream related to their levels of availa ility. he costs of the capacity mechanism were recovered from end consumers. We have used actual historical data on capacity payment levels to calculate the end consumer costs of the C oth with and without wind generation.
m
Under the new SE , from 1 cto er 18, the C has een replaced with a new capacity mar et. his allocates a limited volume of elia ility ption ( ) contracts y competitive auctions. Capacity providers which are successful in the auction are paid the auction clearing price which is an annual €/kW payment for the contracted capacity. he costs of the SE capacity mar et are recovered from end consumers.
Wind in reland costs and enefits
aringa artners LL is a Limited Lia ility artnership registered in England and Wales with registration num er C 71 and with registered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK.
We ha e modelled the SE capacity market usin our in house capacity auction model, usin the follo in assumptions A de rated peak capacity mar in of is assumed for security of supply. All enerators in principle can offer capacity into the market - e istin enerators estimate their earnin s from the ener y and ancillary ser ices markets and then compute the differential bet een this and their fi ed costs re uired to remain operational, and - ne build enerators similarly estimate their earnin s from ener y and ancillary ser ices and compute the differential bet een this and the sum of their fi ed costs plus their annualised cost of capital. he clearin price for each year is set at the le el at hich the re uired de rated peak capacity mar in is achie ed. e build enerators recei e the clearin price o er a period of 1 years, to ensure stability for those makin capital in estment decisions.
Wind in reland costs and benefits
arin a artners LL is a Limited Liability artnership re istered in En land and Wales ith re istration number C 71 and ith re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 7
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SE Sin le Electricit ar et erator
SE Sin le Electricit ar et
C en c cle as tur ine
CC Com ined C cle as ur ine
C Ca acit emuneration ec anism
era att our
, i a att, e a att
DS Deli erin a Secure Sustaina le Electricit S stem
E ational ene a le Ener ction lan
CE C U Commission for Ener e ulation Commission for e ulation of Utilities
S C S ort un ar inal Costs
SC radin and Settlement Code
S S stem ar inal rice
ind in reland costs and enefits
arin a artners LL is a Limited Lia ilit artners i re istered in En land and ales it re istration num er C 71 and it re istered offices at rd loor, Dominican Court, 17 Hatfield’s, London SE1 8DJ UK. 8