Wind Power Reduces Electricity Prices

The review ‘Wind Energy and Electricity Prices’, a comprehensive assessment of studies of the impact of wind energy on electricity prices, was carried out by the independent consultancy Poyry AS on behalf of EWEA. It brings together, for the first time, the findings of case-studies in Germany, Denmark and Belgium.

The report finds that in the studies reviewed by Poyry, electricity prices were reduced by between 3 and 23 EUR/MWh depending on the amount of wind power. It concludes that the studies, "essentially draw similar conclusions" that "an increased penetration of wind power reduces wholesale spot prices."

"It has already been well-established that wind reduces CO2 emissions," said Christian Kjaer, EWEA’s Chief Executive. "But now we have stronger evidence than ever before that wind power also reduces electricity prices for consumers. The message is clear – if you want affordable CO2-free electricity, increase the amount of wind power in your electricity mix."

Wind power replaces CO2-intensive production technologies, the report finds. The technology that sets the price on the wholesale market is usually hard coal. Wind replaces hard coal power plants during hours of low demand and gas fired power plants during hours of high demand in all the countries the report analysed.

Wind’s impact comes about because its low marginal costs pushes more expensive technologies, such as gas and thermal plants, out of the market.

This report focuses on the effect of wind energy on the electricity price in the power market. As the report will discuss, adding wind into the power mix has a significant influence on the resulting price of electricity, the so called merit order effect (MOE).

The merit order effect has been quantifi ed and discussed in many scientific publications. This report ends the first phase of a study on the MOE carried out for EWEA by consultants Pöyry, evaluating the impact of EWEA’s 2020 scenarios on future European electricity prices.

The basic principles of the merit order effect are provided in the first part of the document, which gives the reader the necessary background to follow the subsequent literature review. The literature review itself contains methods and tools not only to quantify the merit order effect but also in order to forecast its future range and volume.

The papers reviewed in this literature survey cover a wide range of aspects linked to the price and MOE of wind power penetration in each country. Although each paper in a specified category works with different sets of assumptions, they essentially draw similar conclusions:

*An increased penetration of wind power reduces wholesale spot prices. There were instances of zero spot prices in the studies reviewed, part of which could be attributed to wind generation. Wind power also affects the merit order, resulting in MOE ranging from 3 to 23 €/MWh .
*Wind replaces CO2-intensive production technologies. The literature discusses the MOE of increased wind power in terms of the technology replaced by wind and its position in the merit order curve. During periods of low demand, the technology that sets the price in the wholesale market is usually hard coal in the countries reviewed in the papers. Wind replaces hard coal power plants during hours of low demand and gas fi red power plants during hours of high demand in all these countries.
*Wind can replace part of the base load. Some of the papers discuss the potential of wind power to replace part of the base load in the respective countries or regions. The resulting argument was that wind power could replace a portion of the base load if there is a greater integration of wind producing areas such as Denmark, Germany and the Benelux into one power market.
*Consumers pay lower prices. The MOE and the subsequent effect of wind generation on prices was also analysed from the point of view of the end users. It shows that if both the direct and indirect cost savings from renewable energy generation were taken into consideration, the net effect of the RES support scheme would be negative, that is, the consumers would pay lower prices.

EWEA is the voice of the wind industry, actively promoting the utilisation of wind power in Europe and worldwide. It now has over 650 members from almost 60 countries including manufacturers with a 90% share of the world wind power market, plus component suppliers, research institutes, national wind and renewables associations, developers, electricity providers, finance and insurance companies and consultants.