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Renewable Integration – a view from Germany

By Dave Elliott

High shares of wind and solar power transform the entire power system and can lead to additional system integration and back-up costs aside from building the power plants themselves. A new background paper from Agora Energiewende examines these dynamics and concludes that, not only are the direct integration/balancing costs low, but so are the controversial indirect costs associated with the variable utilization, in balancing mode, of conventional plant – as long as the power system becomes considerably more flexible.

Firstly, the study evaluates the integration and balancing costs of a 50% share of wind and solar power in Germany. Its summary says ‘the costs of expanding the power grid and the provision of balancing energy are undisputed. These stand typically at around €5-13/MWh of renewable power, even with high shares of renewables’. http://www.agora-energiewende.de/index.php?id=144&L=1&tx_news_pi1%5Bnews%5D=467

More controversial are the indirect effects of renewables on conventional power generation. Agora says that this debate usually focuses on the so-called ‘back-up’ costs: the costs necessary for keeping sufficient capacity within the system in order to ensure its adequacy, for example to meet peak demand. It says this ‘back-up’ approach results in costs of at most €3/MWh of renewable power. However, it also says this debate is closely related to the fate of the conventional power plants overall. As the volume of power from renewables increases, the production profile of the conventional plants changes and their operating times decline. This modifies the overall power plant structure and plant utilization pattern, away from baseload plants to those that can react more flexibly. Its summary says ‘the logical result is declining returns for less flexible conventional power plants. If and how such lost revenues can be attributed to renewables is a source of contention among experts,’ with the answer depending heavily on the perspective taken.

What is clear is that when new solar and wind plants are added to a power system, they reduce the utilization of the existing power plants, and thus their revenues’. It puts the costs of the reduced utilization of conventional plants at a maximum of €13 MWh, with a 50% share of wind and solar energy in Germany. However, it says, ‘a flexible adaptation of the power system over the next 20 years can reduce these costs to almost zero’. Under certain circumstances, it claims, the costs of declining conventional power plant utilization could even be negative. Renewables would then provide an integration benefit with the ‘cost’ falling to minus €6/MWh. This, it says, ‘could be the case if the reductions in external costs (e.g. CO2 costs) outweigh the effect of lower utilization of conventional power plants, or if cheaper renewables replace expensive power from conventional plants’.  It also mentions the potential costs of nuclear accidents, a risk avoided by the use of renewables. www.agora-energiewende.de/fileadmin/Projekte/2014/integrationskosten-wind-pv/Agora_Integration_Cost_Wind_PV_web.pdf

To try to simplify things, the Agora study proposes a different assessment approach, based on comparing the total system costs of different wind and solar scenarios. This approach it says ‘can assess the total costs while avoiding the controversial attribution of system effects to specific technologies’.

Fair enough, it provides a standard measure. But it doesn’t really resolve the conflict of views over the scale of the ‘utilisation effect’ due to the changed market profile. For example, an earlier report by the Potsdam Institute, with a contribution from the Vattenfall utility, had claimed that, with the ‘profile’ costs faced by utilities added in, the costs of integration of 40% renewables would roughly double their overall cost. While Agora puts the extra profile-related costs at  €13/MWh (for a 50% share) Potsdam said it was €40/MWh. http://ssrn.com/abstract=2200572

Maybe what is really happening here is that the utilities are complaining about a profit squeeze as their old inflexible plant becomes less viable. Should this cost be passed on to the consumers? Most costs are! Certainly it is true that, under tight competitive markets, some of the more useful flexible gas plants are also being squeezed out by low marginal-cost PV solar, which can meet the mid-day demand peak in Germany at less cost. If we want to keep some of the gas plants for grid balancing, then special subsidies may have to be adopted, as with the UK’s Capacity Market, paid for via a levy on consumers’ bills. Germany, however, isn’t keen on that – it says markets should deliver what is needed for balancing, without the need for intervention or a special market.  See my earlier posts and www.bmwi.de/EN/Service/publications,did=721538.html

We’ll have to wait to see who’s right. But either way, consumers will pay!

Looking further ahead, it is possible that, in future, choices will have to be made between variable renewables each with effectively zero marginal generating cost. The choice may then depend on the balancing and system costs, which may differ if the sources have different weather-defined characteristics, or on their environmental costs, which again may differ slightly. The ‘total system cost’ approach proposed by Agora may have to be enlarged even further, assuming that a market-based assessment approach is retained.

It does seem likely that, as renewable generation costs fall, balancing/integration/profile costs will become proportionately more important though, as can be seen, there are some uncertainties about some of them. Like Agora, IRENA takes an optimistic line. Even though the overall balancing and integration costs will rise as the more variable renewables are added to grids, it suggested that when the local and global environmental costs of fossil fuels are taken into account, grid integration costs look considerably less daunting, even with variable renewable sources providing 40% of the power supply’. http://www.irena.org/menu/index.aspx?mnu=Subcat&PriMenuID=36&CatID=141&SubcatID=494

The International Energy Agency is if anything even more upbeat, claiming that, while with up to 45% penetration, backup/grid balancing might add 10% to 15% to costs, given technology development and higher carbon prices, in time ‘the extra system costs of such high shares of variable renewable energy could be brought down to zero’: http://www.iea.org/publications/freepublications/publication/the-power-of-transformation—wind-sun-and-the-economics-of-flexible-power-systems.html

We will have to wait and see who is right on that too. Meanwhile, all of this and more is explored in my new IoP book ‘Balancing Green Power’, which is out now. More on that in my next post.

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