Wednesday, 29 October 2014

News from Germany and UK

The German Association for plant construction this month have issued a warning about the damage that increased cycling of power plants, due to balancing of renewables on the grid, is having on generation equipment :

The FBDR is the German association for process plant construction in the energy, environment and process industries. Their press release of the 6thOctober 2014 below lays it bare in that that thermal power stations remain as a central factor for a reliable electricity supply and that existing plants are not technically laid out for the operational requirements of today, which naturally is being altered due to the highly intermittent input of increasing amounts of solar and wind energy on to the grid. As the press release points out even if Germany was to meet a 100% renewable potential, it would still need to guarantee it through a back-up performance of 80 GW by means of conventional power stations.

This rapid increase in renewables in recent years in Germany has put operational demands on existing gas and coal power plants, which are simply not technically designed for it. The plants must be more frequently switched on and off in order to be able to compensate for the fluctuations, which are associated with electrical inputs from sun, wind and water. The degree of load change is partly more than 200 times higher than that permissible for the power station. As a result the danger of lasting damage to the power  plants grows – along with increasing risks to the security of electrical supply.   On  their own the plant operators cannot come up with the necessary investment for the technical conversion of thermal power plants. Already we have reached the situation where the operation of conventional gas and coal power plants is barely profitable, even to the point that the regulated maintenance is more and more being postponed. Correspondingly the political process is being called upon, not only to promote pumped storage and transmission systems, but also to integrate the existing power stations into their planning. “If you want the Energiewende (energy transformation), you must also provide for your back-up cover”.

And the UK National Grid have issued a report stating that they are facing a capacity shortage this winter, with emergency measures including "load shedding" of heavy industrial users where factories will revert to their own sources of electricity generation i.e. diesel generators, in order to reduce peak demand (essentially a transfer from coal to diesel power) :

So will the new 400 million euros East West Interconnector be lying idle over the winter as a result ?

Sunday, 19 October 2014

Calm Weather Blow to Wind Farms

September a bad month for wind farms as their income is slashed

This September was unique for its very calm and dry spells as a high pressure moved over most of Europe. The above graph shows how poor wind power output was compared to the previous September with the average wind output roughly half that of September 2013. Records from SEM-O show that the incomes of wind farm companies fell, as a result, by as much as 72% from last year.

A wind farm company in Cavan lost € 372,022, a drop in income of 72% from last September, while a large wind farm in Donegal lost a total of € 706,996, a drop of 68%. In Cork, another large wind farm lost € 537,360, while a wind farm in Galway lost € 388,221, both representing a collapse in income of 64% . Wind farms in Mayo and Leitrim also took a big hit while those in Kerry and Wexford fared slightly better with drops of income in the region of 44% - 46%. A sample of 12 wind farms from around the country were taken and among them, there was an average loss in income of 61.7% from the previous September. 

This sample represented a combined capacity of 560MW and if extrapolated out to 2,000MW, gives an estimated total loss of € 13.9 million for a single month to the wind industry. 

If the high pressure activity continues in the coming months, these companies may well face financial difficulties as their bottom line is further eroded. This could shake investor confidence in the wind industry with losses like these unexpected from such a heavily subsidized industry. The Renewable Feed in Tariff (REFIT) guarantees a fixed price for wind energy with an additional payment of 15% on top of this fixed price, but if the wind doesn't blow strong enough, then they don't get paid. 

Larger companies like ESB, Bord Gais, Energia and Airtricity (who all operate wind farms) will be able to absorb these losses for longer than smaller private companies. In particular, ESB, who own most of the thermal (fossil fuel) plant in the country, a profitable business to be in when we get calm periods like these. 

Saturday, 11 October 2014

Is there an energy bubble in Ireland ?

Key To Graph:

Dispatchable Plant : Fossil fuel and hydro plant.
Average Demand : Average electricity consumption over the year.
Actual Peak Demand: Peak demand each year
Forced outages: the rate at which plant unexpectedly break down
Total : Total of all generation capacity - wind, hydro, fossil fuel, East West interconnector.

The above chart shows the increase in electricity generation capacity in Ireland (from Eirgrid Generation Adequacy Reports). The dotted line shows Eirgrid’s demand estimate back in 2008 when Eamon Ryan was minister (Eirgrid Grid25 Report 2008). 2009 was the year when Ireland began adding more plant, mostly gas, and the gap between generation capacity and falling electricity demand began to widen. As a result, forced outages, the rate at which plant unexpectedly break down, decreased due to this upgrading of old fleet. Dispatchable plant, made up of fossil fuel, pumped storage and hydro, rose by about 800 MW and total generating capacity, including wind, rose by just over 2000 MW since 2006.

This then sums up quite nicely the two main problems arising out of Ireland’s current energy policy:

1) The inability of wind energy to displace conventional fossil fuel plant - as wind energy is an intermittent and unreliable source of energy, it is incapable of displacing plant powered from other conventional sources. This is undoubtedly the case in Ireland and everywhere else.

Eirgrid publish a report every year, stating how reliable their electricity supply is - they call this generation adequacy. If they had a mix of gas and coal plants, with a few extra spare plant for back up, they would be able to report a good generation adequacy. Adding a small bit of wind wouldn’t affect this. The paradox with wind is that the more wind energy you add to the mix, the more unreliable the electricity supply becomes and the more generation adequacy becomes eroded. Eirgrid refer to this as the capacity credit for wind. A generator with a high capacity credit means you can safely shut down other plant and replace it with that generator. Wind energy’s capacity credit is much lower than other energy sources and it diminishes with the more you wind you add.
So to sum up, wind energy, no matter how much of it you have, can never replace a fossil fuel plant.

2) The additional costs arising out of the above - The facts are that all plant in the system, whether it is fossil fuel or wind, have to paid for by the consumer. As can be seen in the graph, average demand and average peak demand have fallen. This means that given Ireland’s large amounts of plant, some of this plant is lying idle. But this plant can’t be allowed to close down, as it may be needed for reserve or to meet a spike in peak demand. Indeed, data from SEMO shows that Tynagh gas plant in Galway only provided electricity to the grid for roughly the equivalent of two months last year but received € 65 million from the market. On top of this, through the PSO levy it received € 69 for security of supply. Tynagh claim that it now runs less due to increased wind penetration.  Without these payments, the plant would have to close down, but Eirgrid cannot take the risk of losing this capacity (as it is dispatchable as opposed to been intermittent). There are other plants around the country in the same position such as Tarbert and Great Island heavy fuel oil plants that keep 5 days worth of heavy fuel oil on site at all times. Tarbert was actually due to close in 2013 but this has been delayed till after 2020. Rhode power plant in Offaly is another example. They said in a recent EPA report that lower demand from the Grid has resulted in the plant running for just 17 hours in 2013. Tawnaghmore plant in Mayo ran for even less at 10 hours. If you are in charge of operating the grid, then you either decide to allow these plants to close or you increase electricity bills to cover the fixed costs of these plants. As you can’t rely on 2000MW of wind, then you only have one choice available to you - keep them open.

As for the wind farms, they need to be paid too. I have obtained the payments from SEMO for the roughly 2,000MW of wind installed at the end of 2013. The total came to € 277 million. On top of this, there are curtailment and constraint payments in the region of € 140 million. So electricity bills were increased by about € 400 million to pay for wind farms. The PSO levy is an additional cost due to wind. This recovers costs for the energy supplier who have to accept variable wind energy from generators. Last year this was € 51 million (In 2014, it has been set at € 94 million). So the total cost to the consumer for wind energy last year was roughly € 450 million (not including the other hidden costs too such as transmission etc).

So it should be clear from the above, that each additional MW of wind, costs extra to the consumer - it doesn’t replace the cost of a MW coming from somewhere else. Some might argue that as wind energy reduces fossil fuel consumption, that there is a cost saving. But I would argue that fossil fuel savings are largely irrelevant to the end user cost of electricity. The relatively idle plants above are paid, not on the basis of fuel consumed, but on the basis of making their capacity available. This is inherent in the market payments structure where plant receive capacity payments as well as energy payments. For these reasons, wholesale costs reductions can never translate into retail cost reductions. The situation is made worse with the fact that demand has fallen since all this additional capacity has been added.

I could have put another line in the graph for electricity prices going up, up and up each year. Wind capacity is due to be doubled in the next few years. This will bring total generation capacity to over 10,000MW. All of this 10,000MW plus of thermal plant and wind will have to be paid for by businesses and households that only consume about a third of that capacity in electricity, and at most in the depths of winter, less than half. Electricity prices in the coming years may make water charges look like small change.

What’s the situation with biomass ?

There is a case been put forward for converting Moneypoint to biomass as an argument for doing away with the need for wind farms and pylons. The main point here is that biomass provides dispatchable generation just like coal does. So a biomass conversion would neatly displace the old coal plant, replacing its costs to the consumer aswell (i.e. regardless of the cost of the conversion and running of the new plant, the old coal plant and its costs would be gone, whereas with wind, it can’t replace a coal or gas plant).

In any case, the right thing now is to put a moratorium on all new plant, whether wind or otherwise, unless it is replacing old fleet.

So to go back to the original title of this post - is there an energy bubble ? Well, the signs are clear that there is one. A huge surplus of capacity over and above what the market needs as explained above is one sign. There are also other signs like the over-valuing of assets, as was seen in the sell off of Bord Gais's Whitegate plant. And then there is government interference in the market, e.g, the State aid given to wind power in the form of REFIT, fixing the price of wind energy over and above its real market value.

This is all reminiscent of the recent housing bubble, but will the government pay heed to the increasing number of critics of their policy this time ?