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Chart of the Week

2019

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Call on me: Scottish wind farms in the Balancing Mechanism

James Brabben
James Brabben

With the wind in her arms

While much of the attention in the Balancing Mechanism (BM) focusses on how flexible technologies such as gas, coal and, increasingly, batteries are being commercially utilised, less is often spoken about the role of wind.

Whilst not strictly dispatchable, management of wind resources is a critical tool for National Grid in dealing with system constraints, supply and demand imbalance and increasingly inertia. We’ve been analysing the BM in greater depth as part of our relaunched Balancing Mechanism Reporting Service, with data for August showing wind was the second-most utilised technology in the BM by accepted volumes after gas.

This week’s Chart of the Week provides detail on this recent trend and importantly who is being called on from the wind market and why.

Someday, some good wind

All licensed generators operating in the BM have to submit bids (to turn down) and offers (to turn up) for each half-hourly period. Accepted wind actions are predominantly accepted bids (to turn down) owing to two key factors. Firstly, nearly all current wind assets are under subsidy support regimes – most under the Renewables Obligation (RO) – and receive payments on a MWh basis. Therefore, when the wind is blowing, operators will typically maximise output for the period to capture value. Secondly and linked to this, wind farms are rarely in a position to dispatch in the BM and “offer” to increase volumes, either technologically or because they are already running at maximum or close to maximum capacity in the prevailing weather conditions to capture subsidy.

Bid and offer price levels are decided by the generators on the basis of the commercial impacts on the operators. As a result, wind generators typically bid at levels which offset the lost subsidy revenue from not generating. The chart shows this price range for the top 14 generators by accepted bid volumes in August. It also shows that bid prices were in the range of -£65/MWh to -£73/MWh – please note that negative bids represent a payments to generators to turn down output. The bid price is around that needed for an onshore wind farm to compensate for lost RO certificates, as well as accounting for start-up and shut-down costs and any associated maintenance. The degree to which a margin is made from this bid will depend on each wind farm and their operations. Licence conditions also restrict gaming activities.

A question arises as to why National Grid would “pick” these wind generators to turn down, when they are generating low-carbon electricity, something we are asked about regularly by our report subscribers. The answer is that typically, National Grid will have already used other, cheaper, options in their “stack” of bids to manage the system when there is too much power. Our analysis shows that wind is predominantly called on overnight and in the middle of the day, times when you would expect the chances of an oversupplied system long system to be greater.

But they don’t tell it all

While price is important, there are also locational and physical system characteristics that National Grid has to bear in mind when balancing the system. Of the top 14 onshore wind generators by accepted bid volumes in August 2019, all are located in Scotland.

This is not only a result of high proportion of onshore wind being located in Scotland, but also system constraints. Effectively, when there is high wind output in Scotland, especially North Scotland, constraints on the physical network often make it difficult to transport power to demand areas, predominantly located further south.

National Grid will often constrain wind production to avoid system issues, and provide a constraint payment for this. The issue has been exacerbated recently with operational issues for the newly commissioned HVDC Western Link, specifically built to mitigate north-south constraints. As a result, constraint payments have hit record monthly highs this year and our BM report analysis shows they topped £8.5mn alone in August.

Constraints are clearly reflected in BM actions, with our analysis showing that 91% of wind actions taken in August being what is known as “SO-flagged”. This is where balancing actions are flagged as system issues, such as constraints, rather than energy issues, such as too much or too little power.

The high volume of flagged actions clearly shows how physical system constraints are impacting the BM, leading to large volumes of wind generation each month being curtailed. While the development of further onshore wind in Scotland is crucial for further growth in renewable electricity, interactions with the physical network will create challenges and likely lead to greater levels of activity in the BM unless further network reinforcements or solutions are found.

We will be hosting our latest Scottish Generators Forum on 26th September in Edinburgh discussing topics such as onshore wind in the BM as well as the latest regulatory and policy news. Please contact James Brabben j.brabben@cornwall-insight.com for details.

Our relaunched Balancing Mechanism Reporting Service is available for a one-month trial, including daily reports and a monthly webinar. Please contact Tim Dixon t.dixon@cornwall-insight.com for details.

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