The World's #1 Renewable Energy Network for News, Information, and Companies.
Untitled Document

Impact of Curtailment on Wind Economics

The increase in utility scale wind development across North America has and continues to change the energy supply mix in many jurisdictions. Driven primarily by state-level renewable portfolio standard (RPS) requirements and clean air regulation, state and provincial supply mixes once dominated by coal, hydro nuclear and natural gas are now becoming more diverse. Intermittent generation sources – once a small component of total capacity – are becoming substantial. And, as a result, system operators have had to periodically curtail these intermittent generators in order to maintain system balance and reliability.

A 2010 study conducted for the National Renewable Energy Laboratory (NREL) revealed that 2009 wind generation curtailment varied significantly by jurisdiction — ranging from as low as 1 percent in the Midwest Transmission System Operator’s (MISO) control area to as high as 16 percent and 10 percent in Texas and Alberta, Canada respectively.  These higher levels of curtailment can have a significant impact on a wind generator’s economics. The table below provides an overview of the impacts of different levels of curtailment on both revenue and the Debt Service Coverage Ratio (DSCR), a key metric used by lenders to determine a project’s ability to meet debt obligations.1

 Impact of curtailment on DSCR for wind.

At 1 percent curtailment, revenues and DSCR remain at a level that would be comfortable to most lenders. However, at 5 percent curtailment and higher, revenues and DSCR deteriorate, putting projects at risk of not meeting their debt obligations or reducing the amount of debt the project’s cash flows can support.

Will Curtailment Continue to be an Issue?

Curtailment can occur for any number of reasons including local congestion, global oversupply, and operational issues. Each type of curtailment occurs with differing frequency depending on the regional and local system’s generation and electrical characteristics.

Local Congestion

Local congestion occurs when there is more generation, wind or otherwise, than there is available transmission or distribution capacity to move the power to load centres. Nowhere has this been better demonstrated than in West Texas where there are excellent wind resources and limited transmission capacity. In 2009 there were about 8,000 MW of installed capacity but only 4,500 MW of available transmission, according to the same 2010 NREL study. As a result, monthly wind curtailment averaged between 24 to 28 percent in the February to April 2009 timeframe. Due to the shorter development times associated with building wind farms as compared to transmission lines, local congestion can have an ongoing impact on wind projects economics. Although transmission development should eventually catch up with intermittent generation development (wind or other) and relieve the majority of curtailment, system planners typically design transmission upgrades to incorporate an allowable amount of congestion. For example, the Ontario Power Authority used a 5 percent planned congestion level when it assessed transmission expansions in a study it conducted under Ontario’s Feed-in Tariff program.

Global Oversupply

During the economic downturn of 2008/2009, a number of jurisdictions across North America had more generating capacity than needed. During this time of low energy demand, several jurisdictions experienced periods of global oversupply – when the amount of generation on the system exceeded local demand – which, in some cases, created negative price environments. Concern over negative prices appears to be part of the reason Bonneville Power Administration (BPA) curtailed wind generators during periods of high hydro generation and low energy demand in 2011. Jurisdictions with an inflexible baseload resource (such as nuclear and large hydro in Ontario, or large hydro in BPA) are inherently more susceptible to periods of global oversupply. The incremental impacts of intermittent generation on systems with these characteristics can cause undesirable outcomes such as curtailment, negative price environments or temporary shutdown and restart of nuclear units.

While global oversupply conditions are anticipated to subside as energy demand recovers in the coming years, these conditions can have a significant impact on new and existing generators if they are not contractually protected against this type of curtailment.

Operational Curtailment

Operational curtailment includes curtailment related to ensuring sufficient supply is available to meet variations in demand and intermittent generation. As electricity demand increases and decreases throughout the day, so must generation. A system operator’s ability to ramp up and down generation in order to meet changing demand is critical to ensuring that supply and demand are always in balance. The highest rate of increase in demand often occurs in the morning. Although some areas rely on storage hydro to increase output during these times, typically coal and/or natural gas generation provide this ramping capability. In anticipation of this period of ramping, coal and natural gas generators may need to be started early to ensure sufficient ramping capability to meet the changing load. In order to accommodate this generation, other intermittent generation, such as wind, may have to be curtailed.

As coal plants are retired in favour of natural gas combined cycle generation in order to meet new Environmental Protection Agency (EPA) regulations, operational forms of curtailment are likely to increase due to the reduced flexibility of natural gas combined cycle generation relative to that of coal. While the change-out from coal to gas has significant environmental benefits, from an operability perspective, coal-fired generation provides a distinct advantage in that it can operate at a lower minimum load ratio to its rated capacity. A typical coal plant can turn down to about 20 percent of its rated capacity, as compared to 40 percent for natural gas combined cycle units. For a 500-MW generator, the result is 100 MW of additional generation. Therefore, if natural gas combined cycle plants are being used instead of coal plants to ramp up supply to meet morning peak demand, there will be more supply on the system resulting in possible curtailment of wind in order to maintain system balance.

Ongoing development of intermittent resources (due to existing RPS rules, as well the substitution of coal-fired power for natural gas) means increasing the likelihood of curtailment. Assessing the project-specific risks associated with a new or existing project requires understanding its exposure to all types of curtailment. Unless contract provisions protect generators from all types of curtailment, developers, investors and lenders need to understand the project-specific interconnection, market rules, local generation and transmission system characteristics in order to forecast exposure to curtailment over a project’s life.

Curtailment will continue to have an impact on renewable project returns. Even curtailment of 5 percent of potential output, which has occurred in several jurisdictions in North America in the last few years, can reduce the DSCR such that incremental equity payments are required from investors. Projects operating in deregulated markets with insufficient transmission, significant amounts of wind, and/or inflexible baseload resources are likely to have the highest levels of exposure.  However, even in regulated markets, site and zonal-specific details will play a significant role in estimating curtailment’s total impact. 

1 Calculations assume a 35% capacity factor, total revenue of $85/MWh, a debt/equity ratio of 75/25, a cost of debt of 6% and a O&M of $40/kW-year.

Jonathan Cheszes is a Managing Consultant with Navigant Consulting's Energy Practice, where he specializes in renewable energy economics and risk assessment, including quantifying curtailment risk across North America.

Image: majeczka via Shutterstock

Untitled Document

RELATED ARTICLES

Global Renewable Energy Roundup: China, Kenya, Turkey, India Seeking More Renewables

Bloomberg News Editors China is being encouraged by three industry groups to double the nation’s solar-power goal for 2020 to make up for sh...

With Vast Amounts of Geothermal, Wind and Hydropower, Why No Solar In New Zealand?

James Ellsmoor, Contributor New Zealand has built an international brand on environmentalism and the great outdoors. So it is unsurprising that t...

GE low wind turbines make debut in France

Kelvin Ross

A new wind farm in France will be the first in the country to deploy GE’s 2.75-120 wind turbines.

Unlikely Allies in North Carolina Clean-Energy Fight

Mark Drajem, Bloomberg With North Carolina’s renewable energy mandate under assault from Republican legislators, green groups seeking to sav...

PRESS RELEASES

Array Technologies’ DuraTrack HZ v3 Continues to (R)evolutionize at SPI

Array Technologies, Inc. (ATI) prepares to showcase its recently launched tracking syst...

Appalachian's Energy Center assists counties with landfill gas to energy projects

The Appalachian Energy Center at Appalachian State University recently completed a proj...

Early Bird Registration Deadline for GRC Annual Meeting is This Week

The deadline for early-bird rates for registration for the biggest annual geothermal ev...

Redesigned HydroWorld.com Video Gallery

Hydropower news and information, and interesting promotional announcements are now avai...

FEATURED BLOGS

Transitioning to Net-Zero Living

Judith and Jeffrey adore living in Belfast, Maine – a quaint harbor town of Belfast, Maine. They previously res...

The True Cost of Electric Vehicles in Australia

In order to avoid increased congestion, further greenhouse warming and lessen Australia’s reliance on imported ...

The Coming Multi-trillion Dollar Energy Investment Drive

In coming years, a multi-trillion dollar low-emission energy investment drive will get underway. Three catalysts wil...

The Perfect Elevator Pitch

The elevator pitch is a concise statement that grabs attention and communicates value, ideally leading to a next step...

FINANCIAL NEWS

Jonathan Cheszes is a Managing Consultant with Navigant Consulting where he focuses on renewable energy development and investment in Ontario and North America. His areas of expertise include market assessment, targeted acquisition identification,...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 4
1507REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @jennrunyon

FEATURED PARTNERS



EVENTS

Doing Business in South Africa – in partnership with GWEC, the Glob...

Wind Energy in South Africa has been expanding dramatically, growing fro...

Distributed Wind Energy Workshop

Description: Distributed wind energy is electricity that is produced for...

2015 AREDAY Summit

The 12th Annual AREDAY Summit, August 8-13th in Snowmass Colorado. Engag...

COMPANY BLOGS

Clean Energy Patents Maintain High Levels in First Quarter, Solar L...

U.S. patents for Clean Energy technologies from the first quarter of 201...

Koch Professor drops his Koch title, still makes same errors plus s...

The Koch Professor’s title isn’t the only thing that’s...

Fact Check: AWEA represents American wind power

The American Wind Energy Association (AWEA) is proud of its members for ...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS