02 Oct 08 Eddie's Blog Global

The value of wind

The first thing the opponents of wind energy do is to say “it’s too expensive”. Lawmakers, who are under pressure from their voters on account of high energy prices are inclined to listen to this “wind is too expensive” nonsense.

And nonsense it is.

Even offshore wind, which is currently twice as expensive to build as onshore, is good value for a country as well as the company that invests in it.

Here’s why:

The fuel is free! What more can we say. Actually we can say a lot more. When the wind blows it displaces the most expensive unit of electricity on the system. The way this works is that the people who give the instructions as to what electricity generators to bring on load always call on the cheapest unit of electricity first. So when the wind blows the most expensive units naturally are dropped off. So wind is not worth the average price of electricity. Because it replaces the most expensive unit, it is more valuable to the customer. In the business we call this high cost, the marginal cost of electricity.

In the electricity world, old inefficient generating stations, powered by expensive gas or diesel make really expensive electricity. These generators usually get turned off when the wind blows.

Simple. And the same applies to other renewables such as hydro, solar, ocean current machines, tidal and waves.

Of course the higher the demand, the more valuable the wind becomes.

So has wind any other value? A great friend of mine, the late Shimon Awerbuch proved how wind had more value than just the free fuel effect. Putting wind on the system reduces the price risk for the entire system. It also reduces demand for fossils and so the price of them goes down.

But more of this again.