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Christopher Cundy

Christopher Cundy

Christopher is a writer for Environmental Finance.Environmental Finance is the leading global publication covering the ever-increasing impact of environmental issues on the lending, insurance, investment…

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Grid Issues to Impinge on Renewables Growth

Electricity industry experts have raised concerns that Europe’s distribution grid is not up to the task of handling the growing capacity from renewable sources, threatening the profitability of plants and the EU’s renewable energy targets.

Spain and Germany, the two European countries with the most installed wind and solar generating capacity, are seeing zero or negative spot prices for power when the wind is blowing strongly, said delegates at the Eurelectric conference in Dublin this week.

Spain has had 300 hours of zero prices in its power pool so far this year, said Stephen Woodhouse, director of Poyry Energy Counsulting, which means wind farms earn only a feed-in tariff for selling power at these times. “These plants are earning significantly lower than thermal plants,” he said. “Already we are seeing curtailment of wind power installation in certain areas.”

At times when the wind is not blowing, combined cycle gas turbine (CCGT) power stations are seen as the ‘swing’ supplier, stepping in to cope with demand. On the back of Europe’s targets to source 20% of energy from renewable sources by 2020, forecasts from the International Energy Agency (IEA) suggest 299 TWh of additional wind energy will be supplied over 2008-20, equating to 140GW of extra capacity. Alongside this, 97 TWh will come from gas-fired plants.

But as wind capacity grows, the intermittent nature of the resource will also affect earnings for gas plants, which will only be powered up on demand. “CCGT investors will face greater price and volume risk. They will really have to trust their traders,” said Woodhouse. “There will be a premium in the future for reliable capacity and flexibility. Maybe we need some market-based prices for these” attributes, as well as quantity, he questioned.

In an instant poll of some 200 delegates in the room, 31% said the best solution to managing the impact of large-scale wind generation is cross-border balancing in intra-day markets – effectively broadening the available market for the power.

“Even with 10-20GW of wind capacity in Spain and Germany, these markets are islanded,” said Ian Cronshaw, head of energy diversification at the International Energy Agency. “Transmission investments are still low and lagging.”

However, there are disagreements over who should pay for better grid connections – the generating country that lacks a market, or the consuming country that could benefit from cheaper power. Woodhouse said it will largely fall to governments to collaborate and create a unified grid with regulated assets that would in turn attract investment. “We don’t see rates of return will be sufficient for merchant connection,” he said.

European energy regulators are beginning to work together to develop a pan-European market, and the European Commission will also address the issue in its energy infrastructure package to be announced later this year.

The poll revealed that 20% thought electricity storage is the best solution. However, experts on a panel session suggested grid-scale electricity storage technology is currently inadequate and expensive.

Meanwhile, they highlighted the need for better demand management and said more should be done to make customers aware of energy price peaks and troughs. “We can’t absorb renewables properly without demand-side management,” said Jerry O’Sullivan, executive director of Ireland’s ESB Networks.

Ian Marchant, chief executive of Scottish and Southern Energy, said electricity suppliers should take a lesson from airlines, asking more for electricity during peak demand periods instead of charging a flat price at all times, and whatever the cost to utilities.

By. Christopher Cundy

Source: Environmental Finance

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