Operating an overloaded power system can have severe consequences such as depressed electricity prices and in some extreme cases, lead to negative prices. Also, the oversupply of electricity can cause the frequency of the system to rise above normal levels, leading to power outages or blackouts.
In some regions, electricity produced from renewable projects such as wind farms has a priority access to the grid, in line with local authority’s policy to reduce carbon emissions. Although renewables are generally the cheapest source of electricity, its generation is not constant through the day. Solar production for example is not available after sunset to meet the evening peak demand. This imbalance between solar supply and demand through the day is described as the duck curve.
Also, below a certain level, generating electricity is no longer profitable as incomes may not cover fixed operational cost. Therefore some power stations shutdown to avoid additional losses if they are not able to produce at or near full capacity.
Merit orders varies from a region to region and may also change with time. However, renewals with low operating cost have generally pushed more expensive fuels such as gas and coal down the merit order and in some extreme case out of the market. Short term marginal cost for coal is higher and dirtier than the other source of energy which means coal producers need to buy more carbon-dioxide permits than the other fuels to burn it.
Due to the inconstancy of solar, wind or hydropower supply, system operators tend to have a threshold from renewables generations to maintain a stable power system. For that reason, a part of the solar and wind production needed to be curtailed in some regions during the lockdown. As electricity cannot really be stored, it’s a non-negligible part of renewable production capacity that does not reached the operating power systems; and in some cases, wasted if the electricity cannot be exported to a neighbouring country.
When higher generation from renewables is not an issue for the stability of the system, the merit order is usually determining the dispatching sequence of the electricity’s suppliers. Merit order is a way to rank sources of energy from the lowest marginal cost to the highest. When the market is oversupplied, power stations sitting at the end of the merit order are asked to produce lower electricity and in some cases to close completely for a period of time.
Coal and gas producers have suffered the most during the lockdown as lower electricity demand have been reflected in coal and gas prices which dropped recently to record low. The combined effect of higher supply from wind and solar and lower demand have pushed electricity prices down too. In some regions, nuclear reactors are also no longer profitable therefore forcing stations to be turned off.
During the lockdown, renewables are taking the power.
Mickael Soussant E:
mickael.soussant@
admisi.com T: +44(0) 20 7716 8073
17 | ADMISI - The Ghost In The Machine | Q2 Edition
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