Elliott off target on wind power and cost savings

Sherman Elliott, an energy consultant and former Illinois Commissioner, was quoted in a recent EnergyBiz article criticizing a recent study of the benefits and costs for consumers of adding wind energy and transmission in the Midwest Independent System Operator (MISO) grid operating region, comprising all or part of 13 states in the Upper Midwest. The original study was authored by respected economic consultants Synapse Energy Economics, and found that adding 20-40 GW of wind energy and associated transmission to the MISO region would yield net consumer benefits of between $3 and $9.4 billion per year, or $63-200 in annual benefits per household in the region, even after the costs of the investment were taken into account. This net benefit occurs because adding wind energy to the electric utility system allows grid operators to turn off the most expensive fossil-fired power plants. The study found that adding wind would reduce electricity prices by 25% or more in the MISO region, reducing wholesale electricity prices by as much as $50/MWh by 2030 (equal to 5 cents/kwh, or about half of the national average retail price for electricity).

Mr. Elliott’s argument is that the study overlooked potential costs that could be associated with integrating large amounts of wind energy onto the power system. In the article, Mr. Elliott offers no math or other estimates to quantify how much these costs might reduce the net benefits that were identified in the Synapse study. In an effort to clear the air about the true costs and benefits of wind energy and transmission, we will use MISO’s own data and experience to compare these potential costs against the benefits of adding wind energy to the grid. The undisputable conclusion is that even in an absolute worst case, any potential costs would be small, and offset at most a few percent of the benefits of adding wind energy to the grid. Thus, the Synapse study’s original findings, that wind energy and transmission offer substantial net benefits to consumers in the MISO region, stand.

Mr. Elliott’s main argument is that wind energy will increase variability on the power system, requiring grid operators to increase use of “operating reserves” and other operating tools that operators use to accommodate variability and uncertainty on the power system.

The reality is that wind energy is a small contributor to the cost of managing power system variability and uncertainty, significantly smaller than the cost of managing changes in electricity demand and the sudden failure of large fossil and nuclear power plants. There has always been a large amount of variability and uncertainty on the electric utility system, as factories suddenly come on and offline, millions of people turn air conditioners and other appliances on and off, and conventional power plants unexpectedly break down. Most of these sources of variability cancel each other out, so most changes in wind energy output are canceled out by opposite changes in the output at other wind farm plants or by random changes in electricity demand.

Moreover, changes in wind energy output are relatively easy and inexpensive for grid operators to accommodate because they occur slowly and are generally predictable, allowing grid operators to use slower-acting operating reserves that typically cost a fraction of what other reserves cost. In contrast, failures at conventional power plants occur immediately and without warning, requiring grid operators to keep 1,000-plus megawatts of fast-acting, expensive and inefficient operating reserves ready 24/7 in case one of those plants goes down.

Don’t just take our word for it. At an April 2012 meeting on wind turbines integration issues, one of MISO’s lead engineers presented on the topic of the operating reserve requirements associated with integrating wind energy onto their power system. He explained that, even with over 10,000 MW of wind energy on its power system, MISO has seen “No increase in the conventional reserve requirement” as a result of wind energy, because “One minute wind farm generation variation has very little impact on net load one minute variability.” He went on to explain that the impact of wind power on the need for regulating reserves, the fast-acting and most expensive type of reserves, “In general is little to none.”

Similarly, at the MISO Board meeting in February 2012, MISO’s Executive Director of Operations reported on MISO’s wind integration experience to date, and noted that “To date wind has not been a significant contributor to operating reserve deployments,” “Wind has had a small impact on regulation reserves,” and “Contingency reserves have never been deployed due to a drop in wind.” He also noted that “Output variability is being mitigated by geographic diversity of the wind,” “Wind forecasting has improved and is expected to continue to improve,” and as a result, “MISO does not currently anticipate significant operational management issues over the next several years.” In addition to a supposed increased need for operating reserves, Mr. Elliott offers other theoretical ways in which any additional variability added by wind energy might increase operating costs. One is that additional variability and uncertainty could force grid operators to more frequently change their choice of which power plants will operate the next day, increasing costs that must be paid to the power plants under a mechanism known as the Revenue Sufficiency Guarantee (RSG).

However, data collected by the Independent Market Monitor for MISO shows that the total of all RSG costs for 2011 was about 1% of the $3-10 billion in annual net savings that the Synapse report found for adding wind in the MISO region. Moreover, as the Independent Market Monitor’s report makes clear, the large majority of RSG costs are entirely unrelated to wind energy and are instead caused by load variability, local voltage support issues, and other non-wind grid management issues. Even incorrectly assuming that a sizeable share of these costs were the responsibility of wind energy, the costs would be small, a fraction of one percent of the benefits of adding wind energy to the grid.

Finally, Mr. Elliott claims that adding wind energy to the grid will increase maintenance costs at conventional power plants by forcing them to change their output more often. Even setting aside the important points that:

• Nearly all changes in the output of conventional power plants are caused by changes in electricity demand;
• Adding any low-cost power plant (like a new coal or nuclear plant) would have the same impact on existing power plants;
• An obsolete power plant that isn’t flexible enough to operate on today’s power system should bear the costs of its own obsolescence; and
• Many of these obsolete power plants are retiring over the next several years anyway,

this argument does not hold water. Data from Xcel Energy in Colorado show that adding very large amounts of wind to its power system would increase maintenance costs at its coal power plants by significantly less than $1 million/year. Even under this worst case scenario, at the levels of wind studied in the Synapse analysis, those costs would amount to 1/10 of 1% of the net benefits of wind energy.

To sum up, Mr. Elliott’s arguments are overwhelmed by the basic but insurmountable math that adding wind energy to the grid only modestly adds to total power system variability, yet greatly reduces power prices and the use of expensive fossil fuels.

By Michael Goggin, American Wind Energy Association Manager-Transmission Policy, www.awea.org/blog/