By Callum MacIver and Keith Bell.
The curtailment of output from wind farms due to lack of network capacity and the associated costs of balancing the system have become a key focal point in the current debate in the electricity sector about the extent to which the system is “broken”. They are also a key driver behind calls being made in some quarters for radical market reform to better align what the market dispatches with the physical realities of the system, i.e. to reduce the need for the system operator to take balancing actions. In this blog, we set out to dig a little deeper into the current state of wind curtailment. In particular, we seek to examine the role of transmission system availability (or rather unavailability), something that is often absent from the discussion. Spoiler: It is very influential! But first, some background is required.
What is wind curtailment?
The National Energy System Operator (NESO) is tasked with balancing generation and demand in real-time in Great Britain (GB) via the Balancing Mechanism (BM). The market provides NESO with a set of half-hourly generator, storage and interconnector ‘physical notifications’ based on those actors’ positions in forward, day-ahead and intra-day trading markets. At ‘gate closure’ – 1 hour ahead of each delivery period – NESO takes over. Their task involves managing any errors in forecasts of supply or demand, or subsequent changes in circumstance. It also increasingly involves unravelling any market dispatches that are not physically feasible within the system, respecting various constraints such as limits to the amount of power transmission lines can carry without becoming too hot, i.e. thermal constraints, voltage limits and a need for a certain minimum amount of system inertia. Costs arise due to each of these factors, but thermal constraints are the single biggest driver of the high and increasing costs for system balancing, in the main due to the need to curtail surplus wind energy in export-constrained areas of the network. This usually means turning wind farm output down in Scotland, because we can’t safely export it south, and replacing that energy in the South, typically with gas generation. This comes at a premium to consumers. The curtailed wind farms still get paid for their original transactions in the market; they might then get paid some more for turning down in the BM, e.g. to cover any lost income from the government-backed Renewables Obligation or Contracts for Difference (CfDs) they miss out on by not being able to generate and which their initial business case – and price that they bid into CfD auctions – assumed they would get. The gas generators also then get paid to generate more and, because this is at short notice, they often charge a premium over their ‘short-run cost’ (the cost of the gas) for doing so. This typically results in the order of a 30% uplift in asking price compared with what they might have charged in the day ahead market.
Constraint costs
System balancing costs caused by thermal constraints are generally stated as the sum of the ‘bids’ to turn down (usually wind) and the ‘offers’ to turn up (usually gas). Each of these are, in principle, competitively priced in the BM. NESO tries to choose the cheapest bids and offers to minimise consumer costs.
Balancing costs have been on a rising trend in recent years. A number of fantastic public data sources developed by curious individuals are now tracking and bringing to life the vast and often otherwise impenetrable market data that is made available by Elexon (the entity that oversees settlement of BM transactions). Below, we make use of one of those resources from Robin Hawkes to show the combined total balancing costs in each year since 2016 alongside the cost per MWh of curtailed energy (turn down + turn-up actions).
Many stories emerge from this data. In one sense, it provides confirmation of one widespread contention: that under a ‘connect and manage’ philosophy (a government policy first introduced in 2009 to allow wind farms to connect before the main network infrastructure had been developed to accommodate them[1]) we’ve built a lot of renewables, particularly in Scotland, without at the same time undertaking sufficient upgrades of the North to South transmission network. Thermal constraint volumes are certainly on an upward trend, but, perhaps surprisingly, it is not a straightforward story of inexorably rising constraint volumes, and therefore rising costs. After a jump in 2020, constraint volumes remained relatively flat through to 2023 (with a noticeable dip in 2021, which was a very low wind output year). However, constraint costs did rise significantly over that period. As Figure 2 shows more clearly, it is the cost of turning up gas that has been big a driving force behind those rising costs. Those with a working memory of the energy price crisis may notice that the sharp rise in costs in 2021 and 2022, followed by a slow reduction, mirrors very closely the cost curve of wholesale gas over the period.
Between 2023 and 2024 we have seen a very large increase in constrained volumes, so even with average balancing costs turning back down towards pre-crisis levels (in part due to lower turn-down prices for wind energy), total costs are on the rise again.
Wasted wind
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