Intermittent Energy Source - Economic Impacts of Variability

Economic Impacts of Variability

Estimates of the cost of wind energy may include estimates of the "external" costs of wind variability, or be limited to the cost of production. All electrical plant has costs that are separate from the cost of production, including, for example, the cost of any necessary transmission capacity or reserve capacity in case of loss of generating capacity. Many types of generation, particularly fossil fuel derived, will also have cost externalities such as pollution, greenhouse gas emission, and habitat destruction which are generally not directly accounted for. The magnitude of the economic impacts is debated and will vary by location, but is expected to rise with higher penetration levels. At low penetration levels, costs such as operating reserve and balancing costs are believed to be insignificant.

Intermittency may introduce additional costs that are distinct from or of a different magnitude than for traditional generation types. These may include:

• Transmission capacity: transmission capacity may be more expensive than for nuclear and coal generating capacity due to lower load factors. Transmission capacity will generally be sized to projected peak output, but average capacity for wind will be significantly lower, raising cost per unit of energy actually transmitted. However transmission costs are a low fraction of total energy costs.
• Additional operating reserve: if additional wind does not correspond to demand patterns, additional operating reserve may be required compared to other generating types, however this does not result in higher capital costs for additional plants since this is merely existing plants running at low output - spinning reserve. Contrary to statements that all wind must be backed by an equal amount of "back-up capacity", intermittent generators contribute to base capacity "as long as there is some probability of output during peak periods." Back-up capacity is not attributed to individual generators, as back-up or operating reserve "only have meaning at the system level."
• Balancing costs: to maintain grid stability, some additional costs may be incurred for balancing of load with demand. The ability of the grid to balance supply with demand will depend on the rate of change of the amount of energy produced (by wind, for example) and the ability of other sources to ramp production up or scale production down. Balancing costs have generally been found to be low.
• Storage, export and load management: at high penetrations (more than 30%), solutions (described below) for dealing with high output of wind during periods of low demand may be required. These may require additional capital expenditures, or result in lower marginal income for wind producers.