Elsevier

Energy Policy

Volume 49, October 2012, Pages 663-675
Energy Policy

Curtailment of renewable generation: Economic optimality and incentives

https://doi.org/10.1016/j.enpol.2012.07.004Get rights and content

Abstract

The loss from curtailing generation based on renewable energy sources is generally seen as an unacceptable solution by the public. The main argument is that it is a loss of green energy and an economic loss to curtail generation with near zero marginal costs. However, this view could lead to overinvestment in grid infrastructure and underinvestment in renewable energy sources. This article argues that some curtailment of fluctuating (variable) generation is optimal. We address the possible contributions to total curtailment from involuntary and voluntary curtailment. The costs of curtailment in terms of lost generation are discussed based on market price and support levels including the rationale for compensating generators for losses. The extent of actual curtailment is illustrated by examples from different global markets. In general, both the value of the curtailed energy and the amount of curtailed energy relative to total fluctuating generation is low but rising. Single generators may be affected considerably if insufficient compensation measures are in place. In the future, optimal curtailment will increase along with an increased share of fluctuating renewable generation. Extending renewable generation comparatively cheaply can be achieved by the installation of additional capacity at offshore locations until optimal curtailment levels are reached.

Highlights

► Curtailment of renewable generation can be optimal. ► Voluntary and involuntary curtailment categories. ► Compensation for involuntary curtailment should be provided. ► Asymmetrical balancing price provides incentive for voluntary curtailment. ► Network enforcement costs can be reduced per renewable generation.

Introduction

The large investments in generation units based on renewable energy sources (RES) during the last years have increased the focus on integration costs of fluctuating generation. A part of these costs are related to the risk that in some hours, too much electricity is generated from these sources relative to network capacities and demand levels. Avoiding curtailment of this generation would require investing in network capacity including international interconnection and storage solutions which are very costly if used for few hours annually. Already today, more frequent occurrences of curtailment for renewable generators are observed in areas with high shares of fluctuating generation such as wind (Fink et al., 2009). The question whether to avoid this curtailment or not is debated increasingly. If deemed acceptable, different criteria can be taken as a decision basis (e.g. Huang and Liu, 2011).

An apparent option to minimise integration costs is to accept generation curtailment due to network constraints or market reasons. At first sight, curtailment of renewable generation might seem as a loss that should be avoided, but in certain situations, curtailment to a limited extent is an optimal solution with regard to total costs of providing electricity. This is illustrated in a number of papers dealing with transmission constraints, capacity investment and security issues (see e.g. Acharya et al., 2009, Rious et al., 2010, Ela, 2009).

Curtailment occurs today both as a consequence of constraints in distribution and transmission grids and a precautionary measure to secure stability of the system when there is high risk that large amounts of wind capacity might fall out during storms or as a consequence of network faults. This has been observed in areas in the US (Texas), Spain and Germany as well as smaller areas in other countries. From the generator point of view, the effect of curtailment is independent of the underlying causes. Therefore, all the different types of curtailment affecting renewable generators are addressed in this article.

This paper is structured as follows. In Section 2 we first provide an overview of the different causes and types of curtailment and categorise them with regard to underlying reasons. The comparison identifies (a) arguments for including curtailment as an option to reduce costs of integrating large amounts of variable renewable generation and (b) incentives that could be used to induce appropriate voluntary curtailment behaviour. From this, the question about optimality under both voluntary and involuntary curtailment and arguments for compensation arises. This is why we turn towards these topics in a next step. On the one hand, full absorption of all generation can lead to excessive network extension costs. On the other hand, compensation to generators is a key topic if we will induce appropriate investment in network reinforcement.

Section 3 analyses the behavioural aspects of voluntary and in-voluntary curtailment and the incentives that affect this behaviour.

Section 4 presents quantitative evidence for both voluntary and involuntary curtailment. A highlight is cast on the coincidence of curtailment and low market prices. Next, Section 5 provides a discussion on total cost arising from all curtailment types and whether they are based on the short-term value of the power. This is related to benefits in terms of investment and operation savings. Finally, Section 6 contains concluding remarks on the possibility of optimal curtailment and the necessary incentives to support optimal behaviour of both generators and networks.

Section snippets

Categories of curtailment

In this section, we categorise the types of curtailment based on the situation in which they occur and the rationale for voluntary and involuntary curtailment. We define curtailment as an instance when a generation unit produces less than it could due to its own marginal cost characteristics.

Network investments become increasingly dependent on the localisation of generation capacity also at distribution levels. Considering that simultaneous peak generation of different technologies in an area

Voluntary and involuntary curtailment—optimal behaviour and incentives induced by compensation

The focus of the international discussion has been on the involuntary curtailment of renewable generators, namely the lost “green generation” and associated financial losses for curtailed generators. In this section, we provide an overview of the arguments about involuntary, yet socio-economic optimal curtailment. However, there are also situations when generators curtail voluntarily even though they generate at very low marginal costs. The relation to market prices is as follows:

  • Involuntary

Involuntary curtailment in Germany

Germany is among the largest wind energy markets of the world. Electricity demand centres are chiefly in the West and the South, whereas wind is mainly sited in the Northern coastal regions and the East. As the planning and permission procurement procedures for network extensions are typically longer than for wind farms, congestion in the high wind penetration regions is handled by curtailment as a means of last resort after other measures have been taken. If the curtailment is due to system

Discussion: what are the economic costs and benefits of curtailment?

An obvious policy ambition is to achieve a level of curtailment that balances social benefits with costs. This will require that costs and benefits can actually be assessed. We have identified categories of curtailment in Table 1 which can all contribute to total optimal curtailment. Some of these will be partly overlapping, but in general they occur at different times. From a theoretical perspective, curtailment should take place up to the point where the marginal cost of avoiding this

Concluding remarks

This article analyses a number of different constellations leading to involuntary and voluntary curtailment. Curtailment can be a rational option to deter generation investments where grid integration costs are very high, or simply to avoid high grid investment cost by accepting a marginal curtailment (loss) of generation when we are expanding the renewable fluctuating generation capacity. Accepting this approach can lead to a more cost-efficient deployment and system integration of RES

Acknowledgements

The authors would like to thank Alberto Ceña, Spanish Wind Energy Association, and Stephanie Ropenus, German Wind Energy Association, for the provision of relevant information. Comments and suggestions from two dedicated reviewers are also greatly appreciated.

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