Renewable Energy Foundation

A series of unwelcome records were broken over the Bank Holiday weekend period, from Friday the 22nd to Sunday the 24th of May, 2020.

(i) Constraint payments made to wind power to reduce output within the Balancing Mechanism were £9.3 million - the highest ever paid for any three-day period (Sunday Telegraph “Wind Farms Paid Record £9.3m to Switch off their Turbines”).
(ii) System electricity prices dropped below zero for long periods with a record average price of -£17 per MWh being recorded on the 22nd.
(iii) Intermittent day-ahead prices used to calculate CfD subsidies averaged -£10 per MWh on the 23rd, the first time the average for an entire day has been negative.

The cost to the consumer of balancing electricity over this chaotic weekend is in excess of £50 million (The Times “National Grid pays out £50 million to turn power down as lockdown hits demand” .

The constraint payments made to wind power to reduce output within the Balancing Mechanism over the Bank Holiday weekend period, from Friday the 22nd to Monday the 25th of May inclusive are summarised in this table:
Table 1. Constraint volumes and payments for wind farms in the Balancing Mechanism for the period 22 May 2020 to 25 May 2020 by day and for the whole period

Problems experienced on the 22nd May 2020 are of particular note, with the constraint payments to wind in the GB system constituting a new daily record of £9.3m. This is roughly double the previous record day of £4.8m on 8 October 2018.

82 wind farms were involved, 66 of them in Scotland, 2 in Wales, and 14 in English offshore waters. Scottish wind farms took £6.9m, while the English offshore stations received £1.9m. Significantly, a large proportion of the onshore fleet was paid not to generate for the entire day with 100% of their projected output discarded as is shown in the following graph

Figure 1: Wind energy generated (blue bars) and constrained off (red bars) in MWh for the onshore wind generators in the Balancing Mechanism on 22 May 2020. The % value beside the wind farm name gives the proportion of the projected total generation that was discarded.

System prices on the 22nd May 2020 were extremely low, recording the lowest average system price for a day at –£17/MWh, i.e. negative £17 pounds per MWh. No other day of the year has averaged under zero for the whole day. The system prices ranged from –£70 to +£52 per MWh with the prices being sub-zero for 14 hours (Figure 2).

Energy consumers were paid to consume energy and generators which over-supplied were charged for the extra energy. In normal circumstances, negative system prices are expected to provide a financial incentive for generators at times of high production to take capacity offline and large-scale consumers in the wholesale market to increase demand to take advantage of being paid to use the excess energy.

However, as the proportion of subsidised renewable and other subsidised generation increases on the system, negative system prices are failing to have the required effect. This is because renewable generators in the balancing mechanism would lose their subsidy if they ceased production and indeed stand to realise more than the subsidy value per MWh if constrained off by the system operator. This is what appears to have happened over the Bank Holiday weekend. In practice, the structure of the renewable subsidy mechanisms rewards behaviour which destabilises the electricity grid with sustained negative prices being a strong sign of system chaos.

Figure 2: System prices in £ per MWh in blue for 20th–26th May 2020 showing negative prices persisted for much of the 22nd and significant parts of the 23rd and 24th May. The day ahead intermittent reference price used for calculating the subsidy for CfD generators is shown in red.

Further evidence for the system problems can be seen in Figure 2 where two electricity system prices are overlaid: 1) the system price and 2) the day ahead reference price used for calculating the subsidy awarded to CfD generators. The day ahead prices for the 22nd May 2020 were largely positive indicating that the problems of oversupply were not anticipated. However, the reverse occurred on the 23rd when the day ahead price was negative for 17 hours in the day – an all-time record – followed by the 24th when the day ahead price was negative for 13 hours.

In 2016 the European Commission instructed the UK government to amend the structure of the Contracts for Difference mechanism used to subsidise the largest and newest renewable installations. They stipulated that from 2017 no subsidy payment should be made if the reference price is sub-zero for six consecutive hours because of the destabilising effect this has on the electricity grid and the fact that the payments are entirely subsidy and represent very poor value to the consumer who foots the bill. The government are currently seeking to remove subsidy payments for all negative price periods. However, these changes are not retrospective and do not affect existing CfD agreements. All current generators with CfDs continue to receive the full strike price when reference prices are negative, consequently being incentivised to generate even though prices are sub-zero.

The Times has reported that total system costs over the weekend amounted to £50 million. Information that we have seen confirms that the total cost amounted to £50.8 million, of which £39.4 million was paid through the Balancing Mechanism, including the £18.9 million to wind reported in our table above. Bilateral trades account for another £4.1 million. There were also substantial payments made under the new, recently-introduced, support-mechanism, named by the system operator the “Optional Downward Flexibility Mechanism” (ODFM). These are payments to smaller embedded generators such as wind and solar to cease production when electricity production greatly exceeds demand, or payments to increase demand. The costs for the Bank Holiday weekend are reported in the Times to have come to £7 million. These costs ultimately feed through to the consumers electricity bills.

Embedded wind farms received roughly two thirds of the payments and solar farms a quarter, with demand-increasing options receiving just under ten per cent. The following table shows the breakdown of costs for ODFM by technology type. If one includes the payments made to constrain off embedded wind generators via the new ODFM mechanism with the constraint payments via the balancing mechanism for the 23rd May, it can be seen that the record of £9.3 million set on the 22nd of May was beaten the next day when the total paid to constrain off wind was £9.7 million.

Table 2: Costs by technology type in £million for small scale generation reduction under the ODFM mechanism for the weekend. Source National Grid  ODFM data  and REF analysis. We assume that the difference between the £7 million total reported in the Times and the £6.9 million below arises from extra payments made outside the ODFM time windows for ramping up or down to the required MW levels.

This was an exceptionally expensive weekend, and while National Grid ESO’s control-room engineers are to be credited with maintaining system operability we believe that our statement to the Telegraph on Sunday the 23 May bears repeating:

Overdeployment of renewables in the UK, particularly uncontrollable wind and solar, has resulted in a very fragile electricity system, which is inflexible and unable to deal with accidents and unexpected circumstances at a reasonable cost to consumers.

Grid balancing expenditure so far this year is already horrific and by the end of the summer it will be terrifying.

This is a national embarrassment, and a disgrace to the management of the electricity sector who have complacently allowed this crisis to develop over the last decade.