NORDIC WIND POWER CONFERENCE, NWPC’2007, 1-2 NOVEMBER 2007, ROSKILDE, DENMARK 3the amount of wind power which must be generated eachyear is known to the model a priori.The use of electricity in the production of district heating ishowever endogenous, but assumed negligible in Denmark,and as such is not included in the target. However, this couldeasily be modified.The Balmorel model uses a generic optimization algorithmto find the best solution for the system as a whole, subject tospecified assumptions. This makes it possible to interpret theimpact on and incentives for different agent groups in themarket by evaluating dual variables to the differentconstraints. Each agent group demonstrates price-taking andprofit maximising behaviour.A target for wind power generation, implemented as amodel constraint, thus has a dual variable which can beinterpreted as the marginal subsidy required for achieving thewind power target. However, it says nothing about how sucha subsidy package is composed, only that on the margin, thesubsidy is equal to the dual price from the model.The simplest form of interpretation is the price a windpower generation certificate would attain in a market.However, a fixed predefined production subsidy per energyunit would give the same result. An efficient tenderingprocess would give the same result on the margin, but withdifferent wealth distributional consequences.Percentage of gross consumption60%50%40%30%20%10%Historic Development and the Target for Wind Power in Denmark0%1980 1985 1990 1995 2000 2005 2010 2015 2020 2025Historic development Planned expansion Target in the modelFigure 2: The wind power penetration targets assume 32 pct. in 2015, 41 pct.in 2020 and 50 pct. in 2025. The figure also shows the historic developmentof wind power generation as ratio of total capacity.Figure 3: Transmission capacities between regions in the model. It isassumed that the 5 Nordic prioritized cross-sections are established. Also, a4000 MW expansion of capacity over the German “Elben snit” is assumed togo along with the German windpower expansion. In Norway, Capacitiesbetween Northern and Central Norway, as well as Central and SouthernNorway are assumed expand by 500 MW. 90% availability of transmissioncapacity is assumed at all times.5.2. Electricity demandThe assumptions on electricity consumption are based onthe most recent projections from the Danish EnergyAuthority .Table 1: Projections of electricity consumption in the analysis (TWh/year).TWh Denmark Finland Norway Sweden Germany2005 35,7 85,0 125,9 147,3 533,82015 37,2 98,1 134,9 156,1 585,82025 39,4 104,3 138,7 159,7 646,65. CENTRAL ASSUMPTIONS5.1. Geography and transmission constraintsThe model used for this study covers the Nordic and theGerman electricity and district heating systems. In Balmorelthe system is divided in regions to represent capacityconstraints in the power system. The Nordic system isdivided in 10 regions and the German system in 3 regions.The figure below illustrates the modelled capacity constraintsbetween the different regions.5.3. Fuel prices and CO 2 costsThe fuel price projections are also based on the latestprojections from the Danish Energy Authority. These areagain based on IEA’s World Energy Outlook 2006. Theprices used are shown in the table below.Table 2: Fuel prices used in the analysis.DKK06/GJ Light Fuel Coal Natural Straw Woodoil oilgas2005 67,0 37,5 15,4 36,6 33,8 33,12015 67,2 37,6 13,7 37,8 33,8 33,12025 69,4 38,9 14,3 39,7 33,8 33,1The price for CO 2 is assumed to be 150 DKK/tonthroughout the analyzed period of time.To represent balancing costs for wind power an extra costof 20 DKK/MWh is added in the beginning of the periodrising to 40 DKK/MWh in 2025. This is discussed further insection 7.
NORDIC WIND POWER CONFERENCE, NWPC’2007, 1-2 NOVEMBER 2007, ROSKILDE, DENMARK 56.1. Investments in the reference and the 50 pct. WindscenariosTwo scenarios have been analysed. In the first scenario, thereference scenario, all endogenous investments in productioncapacity including wind power is based on the marketmechanism. In the second scenario, the 50 pct. windscenario, the investments in wind power in Denmark isgoverned by a target of establishing 50 pct. wind power inDenmark in 2025. In the second scenario 3500 MW windpower is established on land and by 2025 Denmark will have2900 MW wind power off shore. The investments inelectricity generation capacity in Denmark determined by themodel are shown in the figure below.70006000500040003000200010000Reference2015 2020 2025No new investments are undertaken in Sweden according to the modelresults.According to the model all new investments in electricityproduction capacity are coal or gas fired plants. The mainpart of the investments is situated in Germany. As aconsequence of the Danish target for expansion with windpower the investments in thermal capacity is reduced in thewind power scenario compared with the reference scenario.In Norway a new gas fired condensing plant is notestablished in the wind power scenario and in Finland thenumber of investments in gas fired capacity is also somewhatreduced. In total the investments in new thermal capacity arereduced by 1.460 MW because of the accelerated Danishwind power expansion. Of this reduction 420 MW is reducedin Denmark and the remaining 1.040 MW are in the othercountries. This is later used to asses the capacity value insection 7.1.Note that both scenarios have extensive wind powerexpansions in the other countries.6.2. International TradeIn the 50 pct. scenario there is a larger export of electricityfrom Denmark than in the reference scenario.BiomassWind50 pct. windReference50 pct. wind power700060005000400030002000100002015 2020 2025BiomassWindFigure 5: Increase of power plant capacity in Denmark in the two scenarios.In the reference scenario, biomass-fired power plants are established,especially at the beginning of the period. In the 50 pct. wind power scenario,wind power is increased steadily as a consequence of the 50 pct. objective.In addition to this, new thermal plants are established.The figure below shows endogenous investments inelectricity production capacity in the countries aroundDenmark in the reference and in the 50 pct. wind scenarios.It has been assumed in the model calculations that there is noallocation of free CO 2 allowances to new plants.Figure 6: Investments in power production capacities in the two scenarios inother countries than Denmark. Note that the Y-axes are of different scale.Figure 7: Yearly electricity transmission between countries in the twoscenarios in 2025.The transit flows on Figure 7 demonstrate how electricityis transmitted between countries on an annual basis. In bothscenarios Denmark is a transit country for German windpower and Nordic hydropower, but the transit is reduced inthe 50 pct. wind power scenario. The fact that additionalwind power in Denmark results in increased net annualexports is not surprising. In the wind power scenario, morecapacity was established in Denmark and less elsewhere.Again, recall that progressive wind power expansions inneighboring countries are assumed in both scenarios.International electricity trade ensures that the expansion ofgeneration capacity (e.g. wind power capacity) pushes themost inefficient capacity out of the market irrespective ofgeography, as long as transmissions capacity is sufficient.Progressive wind power scenarios can thus be motivator toexpand international electricity transmission capacity. Also,in scenarios with plentiful wind power, the advantage of
NORDIC WIND POWER CONFERENCE, NWPC’2007, 1-2 NOVEMBER 2007, ROSKILDE, DENMARK 6electricity transmission capacity is extensive, since windgenerates power at different times with respect to geography.6.3. Impact on electricity pricesThe development of electricity prices in the two scenarioscan be seen in the figure below.conventional capacity. This can be seen from the figurebelow that shows the necessary marginal subsidy needed in2015, 2020 and 2025 to make the model invest in thenecessary wind capacity to realize the targets.Figure 10: Necessary marginal subsidy to achieve the wind power targets in2015, 2020 and 2025.Figure 8: Electricity price development in the two scenarios 2010 - 2025.The consequence of the increased wind power capacity inDenmark is that the price of electricity in Denmark in 2025decreases from 361 DKK/MWh to 330 DKK/MWh.A more detailed illustration of the electricity prices isshown in the figure below. The figure shows the electricityprice duration curve for 2010, for 2025 in the referencescenario and in the wind power scenario.Electricity price (kr./MWh)7006005004003002001000Duration curve for electricity prices i 2010 og 20251 331 661 991 1321 1651 1981 2311 2641 2971 3301 3631 3961 4291 4621 4951 5281 5611 5941 6271 6601 6931 7261 7591 7921 8251 85812010 Reference 2025 Wind 2025Figure 9: Duration curve for the electricity price in 2010 and 2025.The increasing wind capacity gives a larger quantity of lowelectricity prices in 2025. The number of low electricityprices increases compared to the reference scenario wherethe wind power expansion is lower. An interestingobservation is, that the peak electricity prices, i.e. when theelectricity capacity balance is most strained, is not higher inthe 50 pct. wind power scenario. This implies that althoughthe prices are under pressure from wind power investments,there is still sufficient incentive to ensure available capacity,without having extreme peaks form in the market.The necessary investments to achieve the 50 pct. windtarget will not be realized under free market conditions. Withthe assumed fuel prices and technology data a subsidy isneeded to make investors invest in wind power instead ofFrom the figure it can be seen that the necessary subsidy is80-90 DKK/MWh i 2015. This target can be achieved by onshore wind alone and therefore the subsidy is equivalent tothe necessary subsidy to on shore wind power with theexpected technology development to 2015. In 2020 themarginal subsidy is 130 DKK/MWh and in 2025 it increasesto 180 DKK/MWh. The reason for the increasing subsidy isthat different types of wind turbines and locations aremarginal in the different years. In 2015 only on shore wind isestablished and the marginal location is Eastern Denmark. In2020 more on shore wind power is established in EasternDenmark and some off shore wind power in WesternDenmark where the wind conditions are better than inEastern Denmark. The off shore wind sets the level of themarginal subsidy. In 2025 the maximum level of off shorewind power in Western Denmark is reached and the windpower expansion continues in Eastern Denmark. In this casethe offshore wind power in Eastern Denmark determines thelevel of the marginal subsidy.This can be compared with the current subsidy levelswhere power from turbines established after January 1 st 2005is remunerated according to the market price plus a 100DKK/MWh production subsidy during the first 20 life yearsof the turbine. 16.4. Socio economic consequencesBy comparing the two scenarios, the economic consequencesof the Danish 50 pct. objective can be assessed. In theanalyses, these costs have been assessed both for Denmarkalone and for the entire area (Denmark, Norway, Sweden,Finland and Germany). An important result of the modelcalculations are the overall annual energy costs of meetingthe needs for electricity and heat in the five countriesincluded in the model area. The costs comprise capital costsfor new plants, fuel costs, operation and maintenance as wellas balancing costs for wind power.1 Additionally a 120 DKK/MWh subsidy is awarded for the first 12.000 fullload hours, if decommissioning certificates were used in the establishment.Turbines connected between January 1 st 2005 and December 31 st 2009 arethus entitled. (DEA 2007: www.ens.dk)
NORDIC WIND POWER CONFERENCE, NWPC’2007, 1-2 NOVEMBER 2007, ROSKILDE, DENMARK 8Currently in the Danish system, there are two options toensure balancing with respect to this uncertainty. Thebalancing task can be left to the system operator,Energinet.dk, or it can be handled privately. Energinet.dkcharge a balancing tariff, currently 23 DKK/MWh fed intothe system. This is used to finance the purchase of balancingpower from other generators in the system. This price isdriven by the average price on balancing power and theaverage prediction error of wind power between submittingbids to the spot market and the hour of operation. The levelof the balancing costs in 2005-2006 was 30 DKK/MWh forEastern Denmark  and the average prediction error hasbeen estimated to be 35% when the bid is given 13-36 hoursbefore the hour of operation as it is today in the Nordpoolmarket .Since wind power is increased from now until 2025 in thesimulation it has been chosen to use an increasing cost ofbalancing from 20 DKK/MWh to 40 DKK/MWh in 2025.This is founded on a number of assumptions.- Market development, especially the active use of theNordic intraday market Elbas, will increase until2025, hence put pressure on the price of regulatingpower.- Balancing power trade will expand internationally.Balancing Danish wind power with Nordic hydropower for instance.- Improvements in wind power forecasting methodsand or changes in market design to betteraccommodate wind power (i.e. by moving spot bidscloser to the hour of operation). It is assumed thatthe average error in prediction will decrease to 25%.(This assumption means that the cost of balancing ingeneral is assumed to increase to 160 DKK/MWh in2025, thus giving a cost for balancing wind powerof 40 DKK/MWh).With respect to wind power generation forecasts it is alsoimportant to note that with increased wind powercompetition between forecasting methods is intensified. Thisadds robustness to the forecasts as different wind powergenerators will use different forecasting methods, thusdiversifying the effects of unavoidable systemic errors inforecast methods.7.1. Evaluating the capacity value of wind powerAs mentioned above the intermittent nature of wind poweris implicitly included in the model calculations. The capacityvalue of wind power can be evaluated from the modelresults.The term capacity value is used to express the value ofgeneration to the electricity system. Basically this is aquestion of timing: plants which are able to adjust theirproduction according to the system demand have a highvalue whereas intermittent technologies such as wind powerwould usually have a lower value.There are several ways to assess the capacity value of anelectricity production technology. In a well developedelectricity market, the value of the electricity production canbe assessed as the price a technology may obtain in theelectricity market. In the Nordic market there is no separatecapacity value payment and it can thus be assumed that thespot price in the mature electricity market reflects the realvalue of electricity production (energy and capacity value)hour by hour. In other studies, the capacity value has beenassessed in different ways – for instance for wind power, ithas been estimated what the extra investment will be forsufficient backup capacity for periods without wind.Based on an evaluation of the value of wind powerelectricity in the market Ea Energy Analyses have previouslyestimated the capacity value of wind power to be 20DKK/MWh .A UKERC  report estimates the costs to maintainsystem reliability to be 37 – 60 DKK/MWh under Britishconditions. IEA  refers to the ILEX  study and theGreen-net study  and estimates the capacity costs of windpower to be between 22 and 50 DKK/MWh.The capacity value is not a constant technology parameter.The value of wind power for the system is very dependent onthe incumbent capacity of the system. In a system with highpenetration of hydropower with reservoirs or with many fastregulating gas turbines, the capacity value for wind powerwill be high, compared to a system with an abundance ofslowly regulating nuclear or coal power.As explained earlier the Balmorel model was used tocalculate a reference scenario based on market driveninvestments and a scenario where a target of 50 pct. windpower was implemented. Furthermore, two scenarios with atarget of 30 pct. and 40 pct. wind power have beencalculated. In order to analyze the capacity value of windpower the table below shows the installed new wind powercapacity in the 3 scenarios as well as the quantity of thermalcapacity replaced by the new wind power capacity.Table 7: Investments in thermal and wind power capacity in the 30 pct., 40pct. and 50 pct wind power scenarios compared to the reference scenario.New investments in windpower capacity (MW)Reduced investment inthermal capacity comparedto the reference scenario(MW)Replaced thermal capacity /new wind power30 pct.wind40 pct.wind50 pct.wind3,589 4,539 5,670943 1,132 1,4590.263 0.249 0.257The model results show that for each MW of wind powerthe investments in thermal plants are reduced by 0.25-0.26MW. In other terms for each MW of wind power 0.75 MWof thermal capacity is required according to the model. In thecase that all this extra capacity is built only to handle theintermittent nature of wind power and ensure that power canbe supplied in every hour also when the wind does notproduce the extra costs can be calculated by calculating theextra capacity costs of the needed thermal capacity.Assuming that the 0.75 MW pr. MW wind is established assingle cycle gas turbines at 3.5 million DKK/MW the yearlycapacity cost of 1 MW off shore wind power will be 73DKK/MWh. However, this will be an upper limit of thecapacity cost related to the wind power since the extra gasturbine capacity can also be used for other purposes in theelectricity market.Another indicator of capacity value is the average MWhpriceawarded to wind power in the market, in comparisonwith the average electricity price and other technologies.
NORDIC WIND POWER CONFERENCE, NWPC’2007, 1-2 NOVEMBER 2007, ROSKILDE, DENMARK 9This is a more relevant indicator in the Nordic market sincethe capacity value is included in the market price (there is noseparate capacity market). The figure below shows theresults of the model calculations. The figure shows thedifference between the yearly average electricity price andthe average price in the market for an efficient existing coalfired plant, an efficient existing biomass fired plant, and landand sea based wind power where the years represent the levelof technological development. Model results for 2025 areshown for the 30%, 40% and 50% wind scenarios.the cost of integrating wind power is lowered. Geographicalspacing of wind power diminishes intermittency issues inwell connected systems.ACKNOWLEDGEMENTThis paper is a result of several projects undertaken by EaEnergy Analyses during the spring of 2007. The Projectswere financed by the Danish Wind Industry Association andthe Danish Environmental Assessment Institute (now underthe Secretariat of the Danish Economic Council). Individualproject publications are referenced below.EfficientcoalplantEfficientbio plant2015 2020 2025Wind land2020 2025Wind seaFigure 12: Model results for 2025. Capacity value of an efficient existingcoal fired plant, an efficient existing biomass fired plant which is similar tothe technology in which is invested, and land and sea based wind powerwhere the years represent the level of technological development (see Figure4).It can be seen that the coal plant gets a price in the marketthat is higher than the average yearly electricity price andthus has a positive capacity value. The average price for thewind power units is lower than the average yearly electricityprice and they therefore have a negative capacity value. Thecapacity value for wind decreases with increasing quantity ofwind in the system.With the coal fired plant as reference the capacity value ofwind power is 10 DKK/MWh in the 30% scenario, 25DKK/MWh in the 40% scenario and 40 DKK/MWh in the50% scenario.8. CONCLUSIONIt is technically feasible to incorporate 50 pct. wind power inthe Danish electricity without reducing the security of supplyin the electricity system. The prerequisite for reaching thetarget with good economy for society is establishment of thenecessary infrastructure, development of a more dynamicelectricity system and an efficient, international marketwhere also the regulation and operational reserves can behandled internationally.Three aspects of wind power integration have beendiscussed. Although many values can be presented, evenfrom the same simulation results, for the capacity value ofwind power, we propose that capacity value of wind powermust be seen in context with the flexibility of the electricitysystem. 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