◊ Part of the ‘wind energy’ series of articles ◊
Wind energy is an intermittent or variable source. Energy is available when the wind is within a specific velocity range and weather conditions permit – not necessarily when customers need it. System operators manage the amount of generation capacity on the system to meet forecasted load and security requirements. When there is too much generation, operators must dispatch-down generators and when there are insufficient resources to meet load, they dispatch-up generators. There is a cost associated with dispatching that is not included in the generator rates we see. The costs are usually not disclosed.
Suffice to say that the way the Ontario electricity system is set up, wind generators are paid whether they generate or not, based on the ‘availability’ of them to produce energy. How much they get paid to ‘not generate’ was sorted out through discussions between generators, the IESO and the OEB in 2013 when dispatch requirements were imposed on the Market. That was too late to save any money for ratepayers since most of the wind capacity already had firm contracts. Compensation may change again as the outcome of the IESO Market Renewal materializes.
Payment to generators for not generating maintains their total compensation while reducing energy output. Consequently the average price paid per kWh increases.
In a 2018 report the Environmental Commissioner of Ontario (ECO) produced a report showed that the 2016 renewable energy curtailment of 19% added 3 cents/kWh to the average price of 13 cents/kWh paid for wind generation. The cost data is not published by the IESO but was made available to the ECO by request.
The amount of wind energy dispatched down increased to 26% in 2017. If the ECO analysis is correct, we can approximate the cost adder to be 4.6 cents per kWh. In 2018 curtailment was 19% which would add 3 cents/kWh to the average cost of wind energy.
With the ECO data we can estimate that it costs 3 to 4.6 cents/kWh for dispatching down 19% to 26% of available wind capacity.
The takeaway
In Ontario, we pay for wind energy based on what amount is available – whether we use it or not.
Dispatch requirements for wind generators was implemented in 2013, almost 10 years after Independent Power Producers had already signed 20 year contracts. Somebody was asleep at the switch. Anyone with insight would have gotten in front of this before any contracts were signed.
If we cannot use it due to system constraints or otherwise choose to dispatch it down the average cost per kWh goes up. We cover the total cost of what is available by paying more for the smaller volume we actually use.
In 2018 we paid 15.9 cents/kWh for wind energy which includes an estimated dispatch compensation of 3 cents/kWh.
If you build it, ratepayers will pay for it. That’s a good model for Independent Power Producers. Not so much for ratepayers when we have surplus energy.
Derek
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