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Wind farms 'gaming system to inflate millions earned when asked to halt production'

The Telegraph|Edward Malnick|September 9, 2023
United Kingdom (UK)Taxes & SubsidiesElectricity Prices

A paper published in the International Journal of Industrial Organisation concluded that companies were “exaggerating” claims about the amount of energy they expected to produce at times when the transmission network risked being overloaded. The behaviour increases the likelihood that wind farms will be paid to shut down, as well as resulting in higher payments than would otherwise have been given, to those asked to stop producing electricity, according to the economists who wrote the paper.


Study finds companies are 'exaggerating' claims about the amount of energy they will produce at times when network risks being overloaded

Wind farm owners appear to be “gaming the system” to inflate the tens of millions of pounds that they are paid not to produce electricity, a study has found.

A paper published in the International Journal of Industrial Organisation concluded that companies were “exaggerating” claims about the amount of energy they expected to produce at times when the transmission network risked being overloaded.

The behaviour increases the likelihood that wind farms will be paid to shut down, as well as resulting in higher payments than would otherwise have been given, to those asked to stop producing electricity, …

... more [truncated due to possible copyright]

Study finds companies are 'exaggerating' claims about the amount of energy they will produce at times when network risks being overloaded

Wind farm owners appear to be “gaming the system” to inflate the tens of millions of pounds that they are paid not to produce electricity, a study has found.

A paper published in the International Journal of Industrial Organisation concluded that companies were “exaggerating” claims about the amount of energy they expected to produce at times when the transmission network risked being overloaded.

The behaviour increases the likelihood that wind farms will be paid to shut down, as well as resulting in higher payments than would otherwise have been given, to those asked to stop producing electricity, according to the economists who wrote the paper.

The findings will heighten concerns about Rishi Sunak’s decision to relax the effective ban on onshore turbines introduced by David Cameron in 2015.

The ban was partly introduced in response to concerns among Tory MPs about the level of consumer subsidies paid to energy firms operating wind farms. 

Shortly before Mr Cameron’s ban, this newspaper revealed that £11.1 million had been paid to a single wind farm to shut down over a three year period.

Last year, companies were paid £227 million not to produce electricity, according to the Renewable Energy Foundation, which compiles energy data.

RenewableUK, which represents renewable energy firms, said the constraint payments reflected “a chronic lack of investment” in the electricity grid.

But the academics proposed that the so-called “constraint payments” could be limited to a figure “slightly above” the value of the consumer subsidy that a wind farm would lose by not producing electricity. 

Such a move could reduce the total amount paid by up to 28 per cent, they suggested. 

They also suggested that there should be a financial penalty for “false or biased declarations” of the amount of energy that firms would have expected to produce.

The “constraint payments”, which are ultimately added to consumer bills, are being fuelled by a high concentration of onshore windfarms in Scotland often leaving the electricity grid unable to cope on windy days.

As a result, wind farms are paid not to produce energy in order to avoid overloading the network.

‘Clear restraints on the grid’

The latest study - by Michael Waterson, a professor of economics at the University of Warwick, and Mario Intini, assistant professor in applied economics at the University of Bari Aldo Moro - said: “Scotland presents a prime example where generating firms have secured favourable deals but appear to have taken strategic advantage of infrastructure constraints and rules in their operations.”

The paper added that “the concentration of British wind generation in Scotland provides clear constraints on the grid and in all likelihood places particular wind farms at an advantageous position in exploiting these constraints”.

The Western Link, a 530-mile high-voltage cable running from the west coast of Scotland to the north coast of Wales, was built to help overcome the problem by providing more capacity to transport green energy from onshore wind farms in Scotland, to England and Wales.

But the line, which became fully operational in 2018, has been dogged by difficulties.

Under the system of constraint payments, each wind farm owner asks for a particular sum per megawatt hour of energy its turbines would have produced had they been switched on. They also provide final physical notifications (FPNs) of how much energy they expect to produce. 

National Grid chooses whether to accept their bids.

Prof Waterson and Mr Intini studied a sample of 509 days between 2018 and 2019, examining the bids made by wind farm owners, including specifically during periods when it seemed like they would be asked to shut down - such as when the Western Link was not working.

‘Scottish wind farms gaming the system’

They wrote that their findings were “consistent with Scottish wind farms gaming the system”.

The paper states: “The overall wind generation forecast when constraints are imposed is around twice what it is when they are not. However, the total FPN declared by Scottish wind farms is 2.50 times as much in constrained periods, in other words exacerbating the strong wind forecasts.

“This hints at something we explore more rigorously later - declared FPNs are clearly not an unbiased predictor of actual generation, instead being an exaggerated amount, but the fact that they are more exaggerated at certain times suggests that they may be being manipulated deliberately by wind farms.”

Prof Waterson and Mr Intini add: “In sum, our results point to wind generators behaving as expected with respect to prices, and most significantly, seemingly raising their FPN declarations to take advantage of underlying conditions in order to increase the likelihood of being constrained, as well as setting them ‘optimistically’ more generally.

“They have the scope to do this because there is, remarkably, no penalty for false or biased declarations of FPN.

“Moreover, those firms that operate both wind farms and conventional generation potentially stand to gain by being paid to have wind farms constrained off whilst at the same time providing additional conventional generation to meet demand in England.”

‘Everyone wants to see an end to constraint payments’

Barnaby Wharton, the director of future electricity systems at RenewableUK, said: “Everyone wants to see an end to constraint payments, because they reflect a chronic lack of investment in the grid to unlock the huge quantities of clean power which we’re now generating from renewables.

“It’s important to understand that constraint payments are not unique to wind generation - they have been in place for fossil fuel generators for decades, so the gas industry receives them too. 

“We need to move from an antiquated grid which wastes power to one that’s fit for purpose in the twenty-first century as fast as possible. Grid upgrades will solve this.”


Source:https://www.telegraph.co.uk/p…

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