Projected Costs of Generating Electricity - OECD Nuclear Energy ...

The amount of flexibility
The ability to plan the production from wind turbines is dependant on the ability to forecast the wind.
There have been extensive efforts to try to improve wind power forecasts. During the last years the wind
has turned into an important fundamental driver for the electricity markets in e.g. Denmark and Germany.
The forecasting efforts are not only important for the wind turbine owner and for system operation
but also important for the market player’s understanding of the overall price formation in those regional
markets.
There are two key aspects in forecasting the wind power production. The first is the actual meteorological
wind prediction. So far the meteorological efforts have traditionally been focused on other aspects
of the weather, such as precipitation and temperature, with a lower resolution than is relevant for wind
power. There are now increased efforts in the prediction of wind, where the common new elements seem
to be an increased use of online measurements and statistical corrections. The other key aspect is the transformation
of a wind prediction into a forecast of the wind power production. The system operators in all
the regions with significant shares of wind power have wind power forecasting tools. Several research
institutions have worked on the issue for many years.
Knowledge about wind power, demand, and availability of traditional generation capacity and transmission
lines increase towards the moment of operation. The need for flexible resources will diminish
with the increased knowledge. The need for flexibility may be reduced by increasing the number of planning
cycles to decrease the time that elapses from planning to operation. A planning cycle also comes at
a cost, however. Market participants must make an effort in every planning cycle. Each planning cycle
will add transaction costs. The appropriate number of planning cycles will be a trade-off between the quality
of forecasts and the transaction costs.
Assessed and experienced costs of intermittency of wind power
In a study commissioned by the UK Department of Trade and Industry, 2 the costs of handling the intermittency
of wind power has been assessed by comparing modeled costs in the current electricity system
with costs in a system with different quantities and dispersions of wind power. The model results for the
balancing costs are 3-4 €/MWh of wind power at penetration rates of 20-30%. 3 These costs include some
costs for keeping operational reserves.
Eltra, the transmission system operator (TSO) in the Western part of Denmark, reports that for the
3 368 GWh of wind power that they had the responsibility to handle in 2003, the total balancing costs
were 65 million DKK (8.7 million €). 4 This corresponds to 2.6 €/MWh of wind power. Currently they
make wind power forecasts with a 13-37 hour-time horizon that has an average error of 30-35%. The
13-37 hour-horizon is the relevant timeframe in the current Nordic market. This implies that for every
100 MWh of wind power alternative resources must adjust their operation with some 30-35 MWh on
average. The quality of wind power forecasts increase significantly over the 36-hour period. The quality
2. ILEX, 2002.
3. The ILEX study reports the total additional costs in a scenario where all new renewables will come from wind power. The
3-4 €/MWh of wind power is derived as the share of the total integration costs that comes from balancing costs,
approximately 25%.
4. Eltra has the responsibility to handle the generation from a large share of Western Danish wind turbines. This will change
with the implementation of the newly amended Electricity Act. Production from wind turbines in the Western part of
Denmark can be sold in the spot market at the power exchange Nordpool. This trade is taking place at noon a day ahead
of the day of operation, so the trade must be based on a wind power forecast of 12-36 hours ahead of operation. Any
deviations from the forecast must be traded in the real time balancing market where the price is less favourable than in the
spot market. Thereby there is a cost of deviations between the forecast and the actual production. The cost depends on the
price in the balancing market and the size of these deviations.
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