Summary and implications

With the exception of tidal power, renewable energy supply tends to be inconsistent. This does not pose much of a problem today but with the UK's binding targets to cut carbon emissions by 80 per cent by 2050, reliance on renewable energy will increase. The current proposals rely largely on wind power both offshore and onshore. How then will the UK energy supply structure cope? A recent report by leading European consultancy firm Poyry has shed some interesting light on this; as well as highlighting how much still needs to be ascertained. Important points that should be noted:

  • whilst the grid can probably cope with the new intermittence, the economic consequences will be far reaching; and
  • intermittent supply will lead to a huge variation in energy prices both in the long and short term.

The Poyry Report, 'Impact of Intermittency'

On 1 July 2009, Poyry published an in depth report on the impact of intermittent energy supply as a result of increased reliance on wind power in the UK and Ireland. This detailed and impressively researched piece considers how the two countries would cope in 2030 with wind power in place to meet carbon reduction targets (in the UK the wind output is projected as being 43 GW). Using complex models of varying wind and energy demands, Poyry have highlighted a number of key issues likely to arise as a result of intermittent energy supply:

  • fluctuating wind leads to a huge variation in energy prices;
  • due to the unpredictability of wind, more traditional back up supplies of energy need to be in place. Questions arise however over the economic viability of these;
  • Interconnection between UK and Irish markets is of clear value for the Irish system but not for the UK.

Fluctuating wind leads to a huge variation in energy prices

The increased reliance on wind power in Britain by 2030 will lead to extreme price swings, with times of negative prices when the wind blows hard and peaks of almost £8,000 per megawatt hour when the wind drops and demand peaks. This situation will lead to wholesale changes in the UK energy market. With the energy price becoming reliant on the weather rather than traditional supply and demand, the market will face real uncertainty. Furthermore annual variation in wind levels (with wind levels varying by up to 13 per cent year on year) will lead to difficulties in predicting revenue streams from both wind energy and other back-up power sources. However the report seemingly discounts the possibility of storing energy generated even though a number of technologies have demonstrated interesting developments in this area.

Due to the unpredictability of wind, more traditional back up supplies of energy need to be in place. Questions arise however over the economic viability of these

The weather, you won't be surprised to hear, is not a reliable factor for basing energy generation on. Therefore more reliable sources of power need to be in place to support renewable sources. Probably the most intriguing finding of the Poyry report is the questions that now arise over the financial viability of these 'back up' power generators. When the wind is blowing hard, other forms of supply will struggle to compete with wind power in terms of pricing. However when the wind is absent back up power generators can effectively charge as much as they want. This unpredictability, however, will lead to uncertainty over future revenue streams of traditional power generators.

Government support for non-renewables?

Any power generator built before 2015 will only operate in a traditional market environment for a few years. Increasingly they will see the price at which they can sell their electricity generated fluctuating as a result of weather conditions. Consequently traditional financial modelling for their profitability goes out the window. This could lead to power stations being abandoned or never even manufactured. This again could lead to a shortage in energy supply during low wind periods. In order to ensure these back up supplies are in place, surely some form of government intervention would be needed. Whether this is something the UK Government desire and indeed can afford must be questioned. However the alternative of energy shortages in our energy-reliant society cannot be contemplated.

Interconnection between UK and Irish markets is of clear value for the Irish system but not for the UK

Due to variations in wind it has been widely considered that interconnection between Irish and British energy markets would temper any pressure on energy. The Poyry report refutes this. Although any interconnection could feasibly swallow any shortage in wind electricity in Ireland, the size of the UK market means interconnection has minimal impact. Furthermore the Irish energy market would then become reliant on British energy price 'spikes'. Whether anything comes of proposals to build European wide intra-connection based upon High Voltage Direct Current cables remains to be seen.

Conclusion

The UK's commitment to renewable energy, whilst commendable, creates a number of unforeseen challenges. The Poyry report highlights that the financial viability of every single form of energy generation in the UK is under threat should the system remain as it is and merely become increasingly reliant on intermittent wind generation. If we are to become reliant on wind power, therefore, it is clear changes are required.