"Market power": Capacity Markets Are Not Cost Effective

We are often told in Poland by advocates of coal that renewable energy is too expensive. They ignore the fact that onshore wind is cheaper than new coal plants right now and that PV will be cheaper during the investment life of any new coal plant planned today.

The cost of renewable energy support in Poland is about 7 PLN per month on an average consumer bill of 153 PLN. Most of this has gone to electricity producers who would have generated the electricity without support (old hydro and co-firing). Had new capacity in RES been supported, the impact on consumers is normally cut in half by pressure of prices due to increased supply.

Now we are told that consumers must pay to have old coal-plants standing by on the few days a year when extra power is needed. Studies in the United States have demonstrated that this is the most expensive way possible to meet peak demand. See U.S. Electric Power Research Institute (2013).*

Now, however, the cost impact on consumers is being finally discussed in Poland. Consumers will face an increase in bills of 18-50% to allow the big utilities to keep old coal plants on stand-by for peak demand. This is many times the impact of RES support on consumers and one would have hoped that the government would have carefully evaluated alternative schemes to deal with peak demand.  But I cannot seem to find the studies or reports or references generated during this major policy development.


* Germany is reporting to have saved billions of Euro on electricity transmission costs by its moves into energy storage. This savings is not even factored into most analysis of energy storage vs "peaker" plants.

UPDATE: The cost of storage in 2015 is generally quoted as $.20 per kWhr. This price is falling rapidly (about 15% a year). The comparison should be between the peak rate of electricity and the lowest demand period. Poland has already hit this level last summer for a period. The next comparison should be the cost of the peak energy  from a "capacity market" system. I believe that this will exceed the storage cost in the near term. See Energy Strategies paper. It is hard to find data that is transparent, i.e. it is mostly reported as a surcharge on the rate per kWhr in monthly bills. The impact on monthly bills is huge! The DG Competition will require that all technologies compete in "capacity markets." This includes energy storage which competed unsuccessfully in the UK auction last year.  By next year, I expect that energy storage in many places will be competitive in this auctions, which is why Eurolectric successfully lobbied to get stored energy to lose its renewable energy support under the guidelines from the European Commission. This is not a law and will likely be challenged - most Member States have not adopted this stupid rule.

UPDATE 2: In the UK, about one billion GB a year will be passed on to consumers by 2019 for a "capacity market."  Despite the real need for a peak power reserve, only 1% of the capacity market will be linked to demand response.   This is an outrageous waste of the public's money!


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