wind-energyThis post answers the recently much hyped focus on wind’s variability problem, quantifying it in clear cost terms that put it in perspective. The post helps clarify the differences between energy, capacity and the ancillary services surrounding ensuring capacity and goes on to answer some of the other related problems that have been alleged for wind energy as its penetration level increases.

by Chris Varrone, Principal, Riverview Consulting, Inc. is a Cambridge-trained economist and former McKinsey consultant who specializes in wind energy technology. Connect with Chris on Linkedin.

The anti-wind people are at it again, saturating the media with claims that wind energy is “worthless” because wind doesn’t blow all the time. Nothing could be further from the truth.

In a recent interview, host Stuart Varney on FOX-TV hammers at his guest Denise Bode, head of the American Wind Energy Association, saying, “You don’t create electricity when the wind doesn’t blow and the wind doesn’t blow all the time.” Varney is really up in arms about it.

Not to be outdone, our British cousins have been fuming about the Stuart Young Consulting study which came out this month, commissioned by the John Muir Trust. Its author states: “Sadly, wind power is not what it’s cracked up to be and cannot contribute greatly to energy security in the UK.”

This all sounds very plausible until you think about it a bit, which is hard to do while the sound bites are flying back and forth. The truth is that the variable nature of wind resources doesn’t matter very much. We can quantify exactly what the cost of this variability is, and it turns out to be very modest.

This article explains, in layman’s terms, how wind energy is just that, energy, and how this is different from capacity or what are called “ancillary services.” It then goes on to quantify the cost of the ups-and-downs of wind energy, based on multiple academic and industry studies — the answer is that it costs about 4 tenths of a cent per kWh. Finally, it asks the question whether this low cost would continue indefinitely as wind grows to be a large part of our power system, or whether there might be limits to the use of variable resources like wind (and solar).

Wind Provides Energy

Electricity markets reward generating companies in three different ways:

1. Energy
2. Capacity
3. Ancillary services

Energy is straightforward: the buyer pays for energy, measured in kilowatt-hours. It’s like buying ice cream on a hot day: the seller gets paid to meet an immediate need. There is no guarantee that either party will come back tomorrow.

Capacity is also easy to understand. If you can guarantee me in January that you will be there to meet my need for ice cream on the hottest day of July, then that’s valuable. And it gets a separate (smaller) payment.

Finally, there is a market for ancillary services, which is more complex. Ancillary service providers are there to step in when the grid needs help — to maintain voltage or frequency, or to maintain technical parameters like power factor. To stretch the ice cream analogy a bit, it would be like having a friend follow you around with a cooler filled with ice cream just in case you needed it. Even if you never had a craving, you’d still have to pay them something to be “on standby” all the time.

For the most part, wind farm owners rely on getting paid for “energy-only.” There are occasions where wind energy warrants some degree of capacity payment or even ancillary services payments. But for the most part, the value of wind capacity is low, about 10 to 20% of nameplate capacity. So, a 100-MW wind farm is only worth as much as 15 MW of nuclear power from a capacity standpoint.

However, the energy in wind is worth 100% of the energy in nuclear (or anything else) in the spot market; wind energy in the day-ahead market may be worth a little less, but this can be “firmed” using energy trading desks or by using other assets in the operator’s fleet (e.g., wind farm owners may also own natural gas turbines that can deliver any shortfall in the forecast).

So, the first answer to Stuart Varney and the John Muir Trust and the rest is: wind gets paid for “energy-only,” while fossil fuel generation gets paid for energy plus capacity plus ancillary services. So, intermittency is no big deal — the energy markets have already accounted for all this.

Isn’t There an Externality Here?

By now, our TV presenter is probably scratching his head, but scholars like Robert Bryce of the Manhattan Institute will step up and claim that things are not right, not right at all. “You see, there is an externality,” he will explain. “A hideous externality driven by the near-zero marginal cost of production for wind. Wind turbines use no fuel. This means that wind farm operators can always underbid fossil fuels in the spot market.”

To read more on the subject of the low cost of wind see our related post: “Wind’s Latest Problem: It Makes Power Too Cheap“.

Always. Think about that: the fossil fuel plant is humming along and a storm front moves in. The wind whips up, and the wind farms bid in nearly free power. Well, fossil fuel costs money, so the fossil-plant operator will often choose to ramp down rather than sell electricity for free. But then the storm front moves through quicker than expected — and the fossil plant has to ramp up again. Up and down, over and over, all year long. This is wasteful. It causes increased maintenance. It is an externality imposed on the fossil fuel operators by those darned, fickle winds.

The cycling of fossil fuel plants has been studied for many years, and the generalized form of this problem is called the cost of “wind integration.” As Michael Milligan, a researcher at the National Wind Technology Center, puts it, there are four costs to integrating wind:

1. Committing unneeded generation
2. Allocating extra load-following capability
3. Allocating additional regulating capacity
4. Increased cycling operation

I will spare you the details (you can read them here).

The key point for the layman to understand is that the implicit cost of all of these effects can be seen in the ancillary services market (i.e., what it costs the system operator to pay for backup). If there is greater uncertainty, then generators will charge more for providing backup.

How much more? Many studies have found the cost of wind integration to be in the $3 to $5 per MWh range. Or about FOUR TENTHS of a cent per kWh.

That’s it. All you are paying for is a little fuel and a little maintenance.

So Stuart, it’s NO BIG DEAL, okay?

What if Wind Provided 20% of Our Energy?

By now, even the Manhattan Institute’s best and brightest would have sweat on their brow. In my imagination, they would grasp at the final straw, arguing: “Well, that’s all well and good, but you’re forgetting that wind is a marginal player today. It’s easy to integrate a LITTLE wind. But once you get to 10% or 20%, the system breaks down. For every MW of wind you put on the system, you need to add a full MW of fossil fuel to back it up. It’s completely uneconomic from a capital cost perspective.”

Of course this is all specious, too.

Such scholars love to remind us how wind is just 2% of the US Energy pie today, neglecting to mention that 35% of the new-build for the past three years has been wind power.

The fact is that there are already states and countries that have 20% or more wind power over the course of a full year — Iowa for one; Denmark and Northern Germany for another. And, in some of these places, wind accounts for 50% or even 100% of electricity demand for certain periods.

Are there rolling blackouts in Europe due to their reliance on wind energy? No, far from it. The reliability of European grids is far better than US grids. In fact, according to Jay Apt, Executive Director of the Electricity Industry Center at Carnegie Mellon: “The United States ranks toward the bottom among developed nations in terms of the reliability of its electricity service… The average U.S. customer loses power for 214 minutes per year. That compares to 70 in the UK, 53 in France, 29 in the Netherlands, 6 in Japan, and 2 minutes per year in Singapore.”

So, European grid operators have learned how to integrate wind in large quantities. Have they built large numbers of natural gas peaker plants to “back up” wind? No, not at all. European power system experts tell me that they are not aware of even a single gas peaker plant added to balance wind energy — not even in Northern Germany or Denmark.

There is enough capacity in the system to handle everything without adding any extra capacity.

In this context, and given that in 2007, under George W. Bush, the US Department of Energy came out with a plan called “20% Wind Energy by 2030,” it would seem that we are okay for at least the next 20 years.

What happens beyond 20% or 30% wind penetration, it is hard to know for sure. I asked Mr. Peter Jørgensen, Vice President of International Relations at Energinet, Denmark’s grid operator, who told me: “We are able to balance the present system with strong interconnectors, market-based trade with the neighboring countries, and good wind forecasts.”

No one is saying that a country can run solely on wind all year long, but Denmark does plan to reach 50% wind penetration by 2025.

Jørgensen says: “It is a big challenge to integrate even more wind power in the system, but we think that we can manage this task, and we base our activities on the development of a strong international transmission grid, a flexible and coherent energy system and SmartGrid solutions.”

So the key is not “backup” for wind – that’s the wrong concept entirely – but flexibility for the entire system across all generation types. Flexibility comes in four flavors: 1) forecasting and scheduling, 2) transmission, 3) demand-side management, and 4) energy storage. You can explore this more in an article of mine that appeared in International Sustainable Energy Review in Dec 2010.


So, we’ve seen that the variability of wind is really nothing to worry about. Grid operators and power markets already know how to deal with energy, capacity and ancillary services, and while the variability of wind is not costless, the cost has been measured many times, and it is consistently in the half-a-cent per kWh ballpark.

So you can rest easy, Stuart Varney. We’ve got you covered.

In our related post: “Does Concentrated Solar Power Have the Answer to Intermittency Concerns?“, we outline two developments in the thermosolar concentrated solar power (CSP) arena that are enabling CSP to fulfill the role of baseload suppliers.

This piece was originally posted on the CleanTechnica website.

© 2011, Chris Varrone. All rights reserved. Do not republish.

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Author: Chris Varrone (2 Articles)

Chris Varrone, Principal, Riverview Consulting, Inc. is a Cambridge-trained economist and former McKinsey consultant who specializes in wind energy technology. His firm advises technology companies, investors and developers on a variety of topics including strategic planning, customer requirements, product/market strategy, cost-of-energy modeling and financing. Recent clients have included FloDesign Wind Turbines (Waltham, MA), Boulder Wind Power (Boulder, CO), and Modular Wind Energy (Huntington Beach, CA). Connect with Chris on Linkedin.

  • John Whitney AIA

    Great post. Smart grid, super grid (transmission), integration of multiple renewable energy sources, effective storage, and on-going weather analysis are all within our grasp. All of the technology is mature and available.

  • Chris de Morsella

    Policy is being held hostage by carefully crafted misinformation and sometimes even scare tactics designed to appeal to a certain base.

    The whole over blown intermittency issue, which is a real problem, but one that is both solvable and as Chris V has pointed out in his post — does not even amount to much of an economic cost; this whole somewhat manufactured issue is emblematic of the kind of strategy being employed by some very narrow interests in the fossil carbon and the nuclear sectors in order to try to perpetuate their current very profitable grip on the energy markets.

    Chris V does a great job — IMO — of deconstructing this particular myth… so much so that he is able to poke lighthearted fun at the media talking heads who have given it such a widespread megaphone.

  • daniel maris

    Very good article.

    Couple of points:

    1. Wind energy is perfect for electric vehicle battery charging using the Better Place centralised charging system. The batteries would be charged when wind was blowing at its strongest.

    2. I think energy storage is the way to go and carbon-neutral methane production is probably the most effective route, particularly as methane can also be used for direct heating.

  • Mark Lively

    I liked the simple way that the author said there are three things to consider in the value of electricity, beginning with energy. Unfortunately, not all energy has the same value, with the value changing by location and time. Further, sometimes energy may even have a negative value, since ISOs increasingly have negative prices for energy. I studied the ERCOT ISO in 2009. Found that 25% of the time the price for electricity in West Texas was negative, very much a wind related issue. But 1% of the time the price in Houston was negative, where the US oil and gas industry produce large amounts of electricity using oil and gas. This tells me that energy is a gross simplification when we are talking about intermittency.

  • James Carson

    The contempt that writer Chris Varrone heaps onto wind detractors is misplaced. The fact is that they are right and he is not. I do not have the time to craft a complete article in response, so let me cherry pick a few of his most misplaced points.

    Regarding ancillary services, the attainment of “20%” goals will double the requirement for regulation services. We already know that. Do I need to point to the relevant FERC docket on the matter? Minute to minute time scale wind intermittancy is usually modeled much like load following. The question is, “who pays?”

    In his analysis, Mr. Varrone places the cost of wind integration at “only” $3-5/mwh. However, in reporting that number, he has socialized the integration cost across the entire system. I could make any cost look small that way. Since wind generation is causing the problem, why should the integration cost not be attributed to the wind generation? This gets back to “who pays?” What happens when we look at cost attribution that way? Assuming 20% penetration, that socialized $4 becomes $20. Hmmm…. How much is wind energy worth? My forecast for WAUE (MISO/WAPA interface on the MN/SD border) last night shows a Cal-2012 RTC value of $25.80. So, what is the merchant value of wind net of integration cost? $5.80 give or take. This indirect subsidy is not included in the usual list of subsidies that wind requires to be viable.

    No discussion of wind intermittancy can be considered complete without at least an acknowledgement that wind generation is strongly negatively correlated with load. In fact, Mr. Varrone inadvertently pointed up a great example with his thunderstorm story. Before a midwestern thunderstorm, the weather is typically hot and sticky with little wind. Air conditioning loads are very high. The storm front moves through and two things happen. Loads drop and wind speed picks up. Fossil plants are already ramping down due to the drop in load, and the wind pickup amplifies that.

    More generally, wind speeds in the midwest are maximum during the overnight hours especially during the autumn, winter and spring. They are minimum during the daytime, especially during the summer. I have seen wind graphs that confirm this specifically for South Dakota, California, New York and Colorado. Anyone who has been in the industry more than a few days knows very well that this is exactly opposite to load.

    Mr. Varrone compared wind integration in Denmark and Germany to wind integration in the US. However, he neglects to mention key differences in the systems that are driven by climate. Northern Europe is winter peaking. Nearly every large population center in North America is summer peaking. Why is this significant? Load factors in North America are much higher and loads are much more variable. He further neglects to mention that power prices in Germany and Denmark are more than double the US. I think I could feed hamsters $7 corn, put them on a treadmill and make money at that price.

    James Carson, RisQuant Energy

  • Stephen Browning

    I’m not sure if Chris realises that the 30+GW German wind sits within the massive 380GW peak demand European system (UCTE – now ENTSO-E). Denmark relies on big Norwegian Hydro to match wind variability and when the dams are approaching limits Nordpool can now uses the Belgian interconnector to help (slower trading timescale due to Hydro as a buffer) . I don’t see any reference to Power Matching which is the big process we have to do with Electricity. Spain has the worse problem as they carry wind, solar and limited Interconnection to France. They have of course mandated that storage is to be provided with Concentrated Solar Power.

    Storage and some Customer Energy management is the key to all this,
    Each Power System is an ‘inefficient’ business; in what other sector do you have to maintain factories to instantaneously meet the peak rate of production (which occurs for short period on a small number of days per year), with a 20% or so margin (based on Conventional Plant) to allow for breakdown. With 30% (120TWh Energy) of Big Wind (30GW) installed, it is predicted that GB will need @66% excess of Plant (Conventional + Renewables) over Peak demand (100GW on a Peak of 60GW).

    We really need to do some proper Power System modelling here to evaluate the technology options. Building excess Transmission to accommodate big Power Source ‘swings’ between different locations, as an alternative to installing excess capacity in the same area as variable output renewables, needs to be evaluated properly within the ‘Big Picture’. As well as economics, the big question is whether a power system can be operated in a stable manner as power source swings occur. This also covers the ability to accurately predict generation and demand (by location), match same and rapidly reassess security (static/dynamic stability, pre/post fault overload and voltage risk) as conditions are predicted to change.

    Some ‘annual’ scheduling runs have been undertaken but these are on a ‘definitive’ basis; all data including wind outputs is set as the studies execute. What is needed is full nested set of time series simulations (Commitment-Schedule-Dispatch-Outturn) in respect of the Power System, with Fuel supply allocation and emissions calculations. As we move through time, predictive and forecast data will change within the forward models and the actual conditions will be applied to give the outturn, including reserve delivery. This all has to be run from the Market Trading timescales through the Operator schedule adjustment, dispatch and ancillary services processes to give the outturn plant loadings for each scenario. At each stage the projected plant outputs need to be applied to Transmission and Distribution monitoring software so that security adjustments can be included. For each scenario studied the viability and outturn costs can be assessed.

    Big Storage (seasonal down to short term) has been mooted in various forums. you really need high efficiencies; otherwise you are adding more ‘waste’ to the Electricity Production process. At a meeting last year some of the ideas for large volume, high power, long timescale storage were discussed (H2, CAES etc). I have just had an idea for a different approach that might work due to the proposed locations of GB Offshore Big Wind.

    My articles on Future Power Systems can be accessed via

    Steve Browning, Power Operations Specialist
    Retired, but still being a nuisance
    Ex CEGB and National Grid UK