Friday, September 14, 2012

New US Study on PTC Demonstrates Market Damage of Wind Subsidies

Exelon, the USA's 5th largest generator of electricity was kicked out of the American Wind Industry Association (AWEA) last week, for the crime of opposing the Production Tax Credit.  Today came the release of a study commissioned by Exelon: Negative Electricity Prices and the Production Tax Credit: Why wind producers can pay us to take their power - and why it is a bad thing.  The study has a message for the current 'stakeholder' initiatives being played out in the realm of Ontario's Independent Electricity System Operator (IESO):  Wrong Way.

Exelon, long a champion of a carbon tax, generates approximately the same amount of electricity as the total IESO market, and it does so with the lowest CO2 emissions of any of the top 25 generators in the United States (pages 27 and 28 here).  The emissions intensity of Exelon's production is about half of Ontario's, and Ontario's is about one-quarter of Germany's.

A section from the study's conclusion describes the impacts of the Production Tax Credit on the rest of the participants in the market: is apparent that the distortionary incentives and bidding practices caused by production-based wind subsidies, in particular the PTC, have caused high prevalence of negative prices in recent years. These PTC-distorted price signals create a range of near- and long-term problems for electricity markets. The PTC subsidy for wind generation artificially dilutes the incentives for conventional generation – generation that is critical for maintaining reliability. While the PTC was originally intended twenty years ago to jump-start a nascent wind industry, the wind industry today is a full-scale global industry and the PTC’s primary effect in the current environment is to distort and disrupt incentives for the electricity industry as a whole.
The description of the impacts of the PTC indicates the same damage as the feed-in tariff has had on the Ontario market - but in Ontario we simply moved onto the incentives for conventional generation and without debate or foresight handed out net revenue requirement guarantees to new, and existing, conventional generators.  In that, we are the warning sign for other markets.

Regulated Price Plan Reports, filed with the Ontario Energy Board (OEB) for Spring 2006 and Spring 2012 shows the percentage of supply capacity from 'Market-based' generators dropping from 17% to 9%, and the percentage of total supply cost for the market-based generators falling from 20% to 3%.  After the decision was made to subsidize natural gas-fired generation, the market in Ontario essentially shrunk to 1/6th the size.

From Page 12 of the report
In Ontario, negative pricing hours comprised about 2% of all hours in 2011, and they have remained at that level thus far in 2012.  While this is essentially equal to the lowest incident of negative pricing shown in the Exelon report, for PJM's Northern Illinois Hub,  US jurisdictions, the IESO also recently noted, "Since the start of 2012, out-of-market control actions were required approximately seven per cent of the time to mitigate SBG [surplus baseload generation]."  
The incidence of negative pricing is therefore likely to be artificially low.

I queried the Ontario data to reproduce a chart showing the percentage of negative hours (on the Y axis) at different percentages of wind production as a share of total market size (the X axis).  The Ontario data, for 2011, is similar to the MISO Iowa Zone data.  The report notes that for the entire MISO zone, summer peak demand is 23% higher than annual average demand while wind production at that time is 44% less than average wind production; Ontario's figures for July and August are similar, with daily peak demand 25% above average and wind production, during those hours, 55% below the average.

Considering Ontario's plan is to contract approximately 5 times it's current wind capacity, and the similarities to MISO figures, it is clear that Ontario will, all other things remaining equal, experience many more periods of negative pricing.

The American Production Tax Credit likely does do a better job of limiting the negative pricing amount than Ontario's Feed-In Tariff has been doing, but Ontario's IESO is taking some steps towards that in addressing floor prices.

Last week the IESO board temporarily banned exports at negative pricing, which will eliminate some embarassing stories of payments to other jurisdictions to take our exports, but limits the ability of the market to function.
The US study notes a role for negative pricing:
Some electric generators cannot vary their output from hour to hour, so rather than submit a positive supply bid, they merely specify to the market operator that they must be kept online at a particular level, regardless of price. As a rule, nuclear units, for example, are scheduled in this “must-run” fashion because normally they operate at a set level of output, regardless of market price, due to low marginal fuel cost, equipment limitations and stringent safety guidelines for operation. Many fossil units are flexible within a range of output, but cannot be cycled down below a certain minimum level without shutting the unit off completely, creating an operationally inflexible minimum block of output. In an hour when a system operator has more “must-run” or zero-bid supply than it has demand, it will post a negative price, to give generators a strong economic signal to curtail generation.
The IESO has restricted generators from taking a short-term loss, possibly for sound financial reasons, only until it implements minimum pricing for certain classes of generators: primarily nuclear and wind.  The suggestions for those prices indicate they are also primarily driven by politics, with wind being suggested to restricted to a minimum price of $-10/MWh, lower than nuclear's minimum bid, under the rationale that "some negative amount is seen as reasonable to account for renewable credits and wear and tear avoidance."  

It is unlikely the wear and tear avoidance is a greater issue for wind than for other generators.
It is likely that the IESO's proposal is driven by politics, and not good design principles to encourage a functioning market.


  1. You really make it seem really easy with your presentation
    but I in finding this topic to be actually something which I think I might by no means understand.
    It kind of feels too complicated and extremely vast for me.
    I am having a look forward in your next
    put up, I'll attempt to get the hang of it!
    My site : günstige krankenkasse für selbständige

  2. Good day! This is my first visit to your blog! We are a team of volunteers
    and starting a new project in a community in the same niche.
    Your blog provided us useful information to work
    on. You have done a marvellous job!
    My web blog pkv wechsel

  3. With havin so much written content do you ever run into any issues of plagorism or copyright infringement?

    My website has a lot of exclusive content I've either authored myself or outsourced but it seems a lot of it is popping it up all over the internet without my permission. Do you know any techniques to help stop content from being ripped off? I'd genuinely appreciate it.
    Feel free to surf my blog post :: all inclusive resorts best deals

  4. It's remarkable to pay a visit this website and reading the views of all friends regarding this article, while I am also zealous of getting know-how.

    Here is my blog :: private krankenversicherung voraussetzung
    Feel free to visit my web blog

  5. This text is worth everyone's attention. When can I find out more?

    Look at my website private krankenkasse für studenten
    My web-site :

  6. Hello would you mind stating which blog platform you're using? I'm looking to start my own blog
    in the near future but I'm having a hard time choosing between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your layout seems different then most blogs and I'm looking for
    something unique. P.S My apologies for getting off-topic but I had to
    My web-site affiliate networks list

  7. Woah! I'm really digging the template/theme of this blog. It's simple,
    yet effective. A lot of times it's difficult to get that "perfect balance" between superb usability and visual appearance. I must say that you've done a superb job with this.

    In addition, the blog loads very quick for me on Firefox.

    Excellent Blog!
    Feel free to visit my page - vergleich gesetzliche und private krankenversicherung

  8. Hello, yup this paragraph is actually fastidious and I have
    learned lot of things from it on the topic of blogging.

    Feel free to visit my website; Beitragsrechner Pkv
    My webpage

  9. Incredible story there. What happened after? Thanks!
    My web page : gesetzliche krankenversicherung private krankenversicherung

  10. I am really loving the theme/design of your
    blog. Do you ever run into any browser compatibility issues?

    A number of my blog visitors have complained about my blog not working correctly in Explorer but looks great in Safari.
    Do you have any tips to help fix this issue?

    Look at my web blog - Private Krankenversicherung Freiberufler
    Also visit my web blog

  11. It's going to be end of mine day, however before finish I am reading this great piece of writing to improve my knowledge.
    My web blog ... private studentenversicherung

  12. Thanks for your personal marvelous posting! I actually enjoyed reading it, you
    may be a great author.I will make sure to bookmark your
    blog and definitely will come back later on. I want to encourage one to continue your great writing,
    have a nice morning!

    My webpage:
    Here is my web-site - kreditrechner ohne schufa

  13. Thank you for sharing your thoughts. I really appreciate your efforts and I am waiting
    for your next write ups thank you once again.

    my homepage: online car insurance
    My web site: insurance business

  14. After looking into a number of the articles on your web page,
    I honestly appreciate your technique of writing a blog.
    I book marked it to my bookmark webpage list and
    will be checking back in the near future. Please check
    out my web site as well and let me know what you think.

    Here is my site

  15. Fine way of explaining, and pleasant piece of writing to obtain data on the topic
    of my presentation topic, which i am going to convey in university.

    Here is my web blog: Walking calculator
    Also see my website - Calorie Burn Calculator

  16. Pretty section of content. I just stumbled upon your weblog and in accession capital
    to assert that I get actually enjoyed account your blog posts.
    Any way I'll be subscribing to your augment and even I achievement you access consistently quickly.

    Here is my page Krankenversicherung Gesetzliche

  17. An interesting discussion is definitely worth comment.
    I think that you should write more about this issue, it
    might not be a taboo subject but generally folks don't speak about these subjects. To the next! All the best!!

    Feel free to visit my web site - bankruptcy attorney florida

  18. This piece of writing presents clear idea in favor of the new viewers of blogging, that in fact how to do running a blog.

    Here is my blog post: easy home loan

  19. How do I start a blog? I just got a new account on Yahoo but
    don't see where to begin writing.?

    Take a look at my web blog - Vaginal mesh Lawsuits

  20. This is a good tip especially to those fresh to the blogosphere.

    Simple but very accurate information… Thank you for sharing this
    one. A must read post!

    Check out my blog post - senseo coffee maker

  21. Write more, thats all I have to say. Literally, it seems as though you relied
    on the video to make your point. You clearly know what youre
    talking about, why throw away your intelligence on just posting videos to your weblog when you could be giving us something informative to read?

    Have a look at my blog post - convictively

  22. It's awesome in favor of me to have a web site, which is valuable designed for my experience. thanks admin

    my web-site: bmr calculator to lose weight

  23. Fantastic goods from you, man. I've understand your stuff previous to and you are just too great. I actually like what you have acquired here, really like what you're stating and
    the way in which you say it. You make it enjoyable and you
    still care for to keep it smart. I can not wait to read far more from you.
    This is actually a wonderful web site.

    Have a look at my web-site :: products that make money

  24. Ahaa, its good discussion regarding this article
    at this place at this web site, I have read all that, so now me also commenting at this place.

    Feel free to visit my web blog - cheap dental implants

  25. I read this post fully concerning the resemblance of hottest and earlier technologies, it's remarkable article.

    Feel free to surf to my page

  26. Attractive section of content. I simply stumbled upon your website and in accession capital to say that I get actually enjoyed account your blog posts.
    Any way I'll be subscribing for your feeds and even I fulfillment you get admission to persistently rapidly.

    my weblog:

  27. Hi, constantly i used to check website posts here in the early hours in the break of day, because i like to learn more and

    Also visit my web-site ... Diets that work for women

  28. I know this web site gives quality dependent content and extra data, is there any other web page which provides
    these kinds of things in quality?

    My website; Read The Full Write-up

  29. Hi there to all, the contents existing at this web page are genuinely amazing
    for people experience, well, keep up the nice work fellows.

    Look into my website - clothing materials

  30. I'm gone to tell my little brother, that he should also pay a quick visit this blog on regular basis to get updated from newest gossip.

    Take a look at my site acoustic guitar chords for beginners

  31. Very nice article, exactly what I needed.

    my web site: Modcloth Coupon