Cape Wind Project Will Reduce Regional Electricity Prices By $7.2 Billion, Study Says

[kristopher]

Cape Wind Project Will Reduce Regional Electricity Prices By $7.2 Billion, Study Says

The Cape Wind offshore wind project will reduce wholesale electricity prices for the New England region by $7.2 billion over 25 years, finds a new report published by economic consulting firm Charles River Associates.

The report shows that ISO New England, the electric grid operator, first dispatches electric generating units with the lowest-cost fuel. Because Cape Wind's fuel - wind - is zero cost, the report states that Cape Wind will displace higher-priced and fossil-fueled units, thus resulting in an average savings of $286 million per year in New England.

The increase in price suppression was attributed primarily to an increase in power-plant retirements and a larger price difference between natural gas and fuel oil, the report notes.

Price suppression in wholesale electric markets that occurs as a result of wind power projects has been documented in Europe and in several U.S. power markets. According to Charles River Associates, price suppression from wind power was noted in the 2009 report, which stated, "All of the wind resource potential could provide downward pressure on the marginal prices for energy within the New England electricity market...This price pressure would ultimately benefit New England consumers."

...

http://www.nawindpower.com/e107_plugins/content/content.php?content.9627

[leveymg]

1. Does this mean that I have to wait longer still for my atomic flying car?

Last edited Thu Apr 5, 2012, 11:47 AM - Edit history (1)

This is the 21st Century, chum. They promised me a Jetsonmobile and nuclear generated electricity so cheap it wouldn't be metered when I was a kid. Now I'm grey and my father's face is staring back at me when I shave in the morning. What gives? You against progress or something? Withholding cool toys n' stuff from kids? Trying to make us cry? You're a Meanie.

This is part of the War on Christmas, I just know it!

[kristopher]

11. Here is what is at work

The merit-order effect

The merit-order effect: a detailed analysis of the price effect of renewable electricity generation on spot market prices in Germany
Sensfuß, Frank, Ragwitz, Mario, Genoese, Massimo

Abstract
The German feed-in support of electricity generation from renewable energy sources has led to high growth rates of the supported technologies. Critics state that the costs for consumers are too high. An important aspect to be considered in the discussion is the price effect created by renewable electricity generation. This paper seeks to analyse the impact of privileged renewable electricity generation on the electricity market in Germany. The central aspect to be analysed is the impact of renewable electricity generation on spot market prices. The results generated by an agent-based simulation platform indicate that the financial volume of the price reduction is considerable. In the short run, this gives rise to a distributional effect which creates savings for the demand side by reducing generator profits. In the case of the year 2006, the volume of the merit-order effect exceeds the volume of the net support payments for renewable electricity generation which have to be paid by consumers.

Can be downloaded here: http://ideas.repec.org/p/zbw/fisisi/s72007.html

ETA: see also http://www.democraticunderground.com/?com=view_post&forum=1127&pid=11729

[leveymg]

12. In English, more supply (even at higher per unit generation costs) of renewables brings down costs

on the spot market. Yes, they could build a few huge centralized power generators at lower per watt cost, but the price to the consumer would actually be higher, because all those little green backyard power generators feeding into the grid offer a diversified supply that lowers costs at times of peak load and when big plants go off-line for repair, maintenance, atomic meltdown, etc.

[badtoworse]

2. The starting price for Cape Wind's electricity is $187 per megawatt-hour in 2013...

and there is 3.5% annual escalation on top of that as per their offtake agreement with National Grid. How will that save money when a gas-fired combined cycle can produce the same megawatt-hour for $30 - $40 at current natural gas prices?

Wind might be free, but Cape Wind's power is anything but cheap.

http://www.rechargenews.com/energy/wind/article295818.ece

[friendly_iconoclast]

3. Exactly- Cape Wind's electricity will be far more expensive than that from a CCGT plant.

Notice also how the article in the OP elides construction costs entirely?

[kristopher]

4. Let's take a closer look at the available information

From your source:

National Grid , the largest utility in Massachusetts, agreed in November 2010 to buy half of Cape Wind’s offshore output starting in 2013 at 18.7 cents per kWh, with a 3.5% annual increase.
Those terms were approved by regulators at Department of Public Utilities (DPU), who ruled project benefits outweighed costs, and Massachusetts Attorney General Martha Coakley.
DPU had estimated that electricity over contract life could cost ratepayers between $420m and $695m above market prices. The agency did put a dollar amount for environmental and human health benefits which it said would accrue from substituting dirty burning coal and fuel oil with clean wind power.

From the OP:

The Cape Wind offshore wind project will reduce wholesale electricity prices for the New England region by $7.2 billion over 25 years, finds a new report published by economic consulting firm Charles River Associates.

The report shows that ISO New England, the electric grid operator, first dispatches electric generating units with the lowest-cost fuel. Because Cape Wind's fuel - wind - is zero cost, the report states that Cape Wind will displace higher-priced and fossil-fueled units, thus resulting in an average savings of $286 million per year in New England.

It might be counterintuitive but there is no conflict between those articles.


They have contracted out a certain amount of their output, but not all of it. The rest is sold on an open auction market - probably 24 hours or 1 hour in advance of need.

This spot market electricity is the most expensive part of the power portfolio for any utility. The generators servicing the demand are idle much of the time, and they have to charge high prices to recoup their investment costs.

You claim that a CC natgas plant can produce the "same megawatt" for $30-40 dollars. To arrive at that number you need to figure out all of your costs - investment, operations, maint, fuel etc, and then divide by the amount of time the plant would be expected to produce sellable power during its lifetime as an investment. If it runs 90% of the time, then it will be able to divide the fixed costs by many more hours than if it runs 40% of the time, right?

The generators selling into the spot market often are some of the least used units and consequently they have to charge some of the highest prices in order to meet overhead.

The way the auction works is that the utility sends out a call for a certain amount of electricity to be delivered over a certain period of time - let's say 800MW between 1-5 PM June 30th. All of those who can sell electricity send in their bids. At a very minimum the bid will equal fuel costs for paid off plants but usually the bids will be much higher - sometimes in the range of the contract price quoted in the article you cited.

Since wind has no fuel costs they can and will bid their excess capacity into this system at $0, ensuring that all of their bidded production is accepted.

OK so far?

Here is where the savings come in. The system works by paying all accepted bids at the same rate as the highest price quoted in the accepted queue.

Let's say wind offers 200MW at $0, the next bidder offers 120MW at $40, the next 150MW at $80, the next 230MW at $130 and the final 100MW at a peak of $190.

All of the bidders will be paid $190/MWh

The question we now need to ask is, what would have been the cost of the next 200MW in the queue that wasn't accepted?

By always bidding zero - its fuel cost - and always being accepted, wind puts a strong downward pressure on the market and can act to substantially reduce the overall cost of providing power to a region, even if it's contracted costs are high.

Counter-intuitive but true.

[joshcryer]

5. Except electrical prices are constrained by natural gas:

Not wind.

If you look at what's planned, natural gas is almost double wind:

http://205.254.135.7/electricity/annual/html/table1.4.cfm

It's a nice argument, but imo is not reflecting the realities.

edit: Hell if you doubt it (I know you hate EIA's future projections / planned stuff) look at what's installed: http://205.254.135.7/electricity/annual/pdf/table1.2.pdf

Natural gas is 467,214 MW wind is 39,516 MW. 11 times as much energy is installed for natural gas over wind.

[kristopher]

6. WIND exerts downward pressure on the market price of electricity.

Your post has nothing to do with what I wrote other than to confirm that there is a spot market for electricity - something we already knew.

[joshcryer]

7. Yet twice as much gas will be built than wind.

[kristopher]

9. The more wind that is built the less fossil fuels we use.

Given the EIA's 100% failure rate on predicting the rate of renewable deployment your's is a baseless claim...

And it also has nothing to do with the fact that installing wind power reduces regional energy costs. Cape Wind plowed the ground for everyone by forcing the development of a policy regime that will fast-track offshore wind development. This last decade was a time of silent action and preparation, the next should be completely different. This is a huge, high quality energy resource in close proximity to very heavy load centers - it will be used.

[kristopher]

10. Kicking for this reply nt

[jpak]

8. K&R and bookmarked

yup