Tuesday, September 11, 2012

There is no value in Gipe's FiT Tripe

Nowadays people know the price of everything and the value of nothing
-Oscar Wilde 

This week renewables' advocates were citing the German Renewable Energy Agency's compilation of the cost of wind energy across selected countries demonstrating wind energy was cheapest where feed-in tariffs were utilized to procure electricity from wind turbine companies (as opposed more market oriented renewable energy standards/RES quotas).

This shouldn't come as a surprise.  Suppliers in competitive markets need to price risk, and guaranteeing a return on investment clearly removes much of the risk.   That may have provided value to consumers if the risk didn't serve any purpose - but risk is fundamental in how a market establishes value.  The risk to wind suppliers in an RES environment is the uncertainty of pricing, including the possibility of not finding buyers at positive pricing,  For the grid utilities serving customers, the expense from committing to intermittent renewables is not maintaining suppliers to meet demand when called on.

Slide 7, Power Markets of the Future
The German Renewable Energy Agency promotes only renewables; the German Energy Agency (dena) ensures electricity can meet demand.  The German Energy Agency is currently looking closely at capacity mechanisms to ensure that there is enough generation to meet demand.  The graphic shown here was part of dena's presentation at a recent conference on Capacity Mechanisms - meaning how to pay to ensure there is the traditional generation to provide power when it is neither windy or sunny.

A better measurement of value is not what one element of supply costs, but the impact of total costs of supply procurement policies on the end consumer.  I have added to the data table produced by the German Renewable Energy Agency and reproduced by Paul Gipe on wind-works, with additional data collected primarily from ENTSO-E and Eurostat.

  • Germany is tops for wind generation, and they ended 2011 with a price of over 25 euro cents/kWh (second highest of the listed countries), which is still growing rapidly,  The EEG charge (the surcharge through which the FIT costs are recovered) is forecast to escalate up toward 6 cents/kWh next year and towards 8 the following year (10 cents/kWh Canadian).
  • The highest price on the list belongs to Denmark (~30 cents/kWh).  The percentage of generation from wind is higher than in Germany, as is end user expense.
  • Spain generates a great share of their electricity with renewables, and Eurostat shows the average cost there only slightly above the continental average.  Unfortunately that is not because the costs of that system are just slightly above the continental average, but due to subsidy via an ~25 billion euro tariff deficit.
  • Portugal also receives much of their total generation from renewables, and the price there was actually slightly below the European average. The market is much smaller than in Spain; the tariff deficit of ~1.8 billion euros also means the costs there are artificially low due to subsidy.
  • Ireland is the last country on this list with a double digit share of production coming from industrial wind turbines.  Eurostat figures show the cost to consumers there to be 30% above the cost to consumers in the UK.

The price paid to wind generators is not particularly relevant.  The many other costs of wind within a supply system would be relevant in a market; feed-in tariffs are designed to distort markets. Looking at the costs of the systems with the greatest share of wind demonstrates that additional costs exist - and many of those cost exist specifically because of the damaging economic tool of guaranteed payments for unlimited amounts of dated technology.

No comments:

Post a Comment