Original-Briefing-pd F.pdf

The cost of balancing the UK's electricity grid has increased from £692 million in 2006 to £1,207 million in 2016, despite a decrease in average system demand. This increase is largely due to the growing share of renewable generation, particularly wind power. Constraint payments to wind farms to switch off when the grid is congested are a small part of the total balancing costs, which also include maintaining frequency and voltage, and ensuring reserve margins.

The additional cost of balancing the grid for each extra MWh of wind output was £22 per MWh in 2016, increasing to £37 per MWh at higher output levels. If wind capacity increases as planned, the additional cost will rise to £80 per MWh for substantial periods. The average market value of wind output in 2016 was £38.5 per MWh, so the additional balancing cost was 57% of the market value. For 13% of the time, the balancing cost exceeded the market value, a situation that will worsen as more wind capacity is added.

The costs associated with solar generation are substantially higher, with an average balancing cost of £34 per MWh at median output and £77 per MWh at the 95th percentile. The total costs of balancing wind and solar output are projected to increase significantly by 2020, with the net economic value of additional generation being negative for 25-33% of the time. The transmission charges paid by consumers will also increase, with the revenue from these charges expected to rise from £2.63 billion in 2017-18 to £3.10 billion in 2021-22.

The net economic value of additional wind and solar generation in the UK was less than £10 per MWh in 2016 and will be negative in 2020. The situation is likely worse in Scotland, where at least 50% of wind generation in 2016 had a zero or negative net economic value, a proportion that will increase significantly by 2020.