(The author is a Reuters market analyst. The views expressed are his own.)
By Gerard Wynn
LONDON, July 17 (Reuters) - Wind power is one of most favoured and fastest growing sources of electricity in Europe, and that creates a problem for grid operators and policymakers who aim to keep the lights on.
The supply of wind power depends on the weather, varying from day to day or even hour to hour, and that variability means its reliability is less at any given moment than power from plants that burn fossil fuels.
As wind power's share of the generation mix rises, policymakers seem to favour two different approaches to avoiding blackouts.
One is for governments to subsidise back-up power through so-called capacity systems, which work by paying generators to guarantee that power plants are available several years ahead, to deal with contingencies.
The alternative is to fine-tune the existing power system and act to reduce the variability of wind power in the first place. Grids would increase cooperation across regions, which would use their combined back-up capacity more efficiently.
Wind integration studies suggest that grid operators could cope with more renewable power without adding big back-up plants, obviating the need for European governments to intervene in power markets.
The European Commission firmly supports the grid cooperation approach and is pushing for completion of a planned single pan-European energy market. It argues that combining markets will help balance power shortages and surpluses due to fluctuations in wind and other forms of renewable power.
A single energy market makes economic sense. By increasing cross-border trade, it will leave the European Union collectively less vulnerable to interruptions in power supply and price spikes and on aggregate will cut power prices.
The Commission says that countries that have or are planning to introduce capacity systems for back-up power are those also with the least interconnection with their neighbours.
That implies that an increase in cross-border trade offers an alternative.
"Member states with high proportions of variable wind and solar will enhance security of supply by relying on interconnection capacity to export surpluses at times of high wind and/or sun and to rely on reliable capacity in neighbouring countries at times of deficit," it said, in a leaked draft report seen by Reuters.
"Ten member states in the EU have less than 10 percent interconnection capacity compared to total consumption still today. It is notable that amongst those member states, several are contemplating or have installed capacity mechanisms."
Spain, Portugal, Greece and Ireland already have some kind of capacity mechanism, while France and Britain are working on concrete plans, and Germany is considering one.
The evidence supports the Commission's point of view.
Studies show that grid operators can cope with high wind power penetration without a massive build-out of reserve capacity, provided that they optimise existing assets.
In the United States, the National Renewable Energy Laboratory in 2010 published a detailed study of the grid impact of a much higher penetration of variable renewable power in western states.
It focused on five states in the wider Western Electricity Coordinating Council - Arizona, Colorado, Nevada, New Mexico, and Wyoming - and modelled the impact of up to 30 percent wind power in 2017.
Perhaps most significantly, it found that closer cooperation, including electricity trade, and more transmission capacity to link balancing area authorities (BAAs) would limit variability by accessing a wider geographic diversity of renewable power.
BAAs control electricity transmission and are responsible for keeping supply and demand in synch at all times within its defined area.
Increasing cooperation also would give BAAs more reserves to call on as needed.
In another operational fix, the study found that more frequent scheduling of power plants to match expected demand with available generation made better use of reserve power.
At present, U.S. grid operators usually dispatch power on an hourly basis. Any mismatch at the sub-hourly level is met by a rapid mobilisation of so-called "load following" resources - for example firing up fast-start power plants or tweaking generators already connected to the system.
Continuing with a system of hourly scheduling when wind power accounts for a high share of generation could use up the entire reserve, leaving nothing left for sub-hour variability, the NREL study found.
"Sub-hourly scheduling can substantially reduce the manoeuvring duty imposed on the units providing load following," the study found.
Other tactics included the incorporation of better wind forecasting into power plant scheduling and more use of demand response, in which energy consumers pay lower tariffs in exchange for agreeing to curb demand at peak hours.
In this case the European Commission seems to have got the balance right.
It argues that capacity mechanisms should be used only as a last resort after all other avenues have been exhausted. Its draft report cautions about the costs and risks of capacity mechanisms.
One such risk is that the prospect of getting paid subsidies to supply baseload capacity could drive power generators to withhold investment in existing plants or threaten to shut ageing capacity prematurely.
"It is clear that there is a risk of companies deliberately exaggerating intentions to shut down capacity in order to get additional revenues," the Commission said.
As for cost, the draft cited EU data to show that payments in existing European capacity schemes ranged from 0.5 euros per megawatt hour in Italy to 14.9 euros in Ireland, or up to a third of the wholesale power price.
Total annual costs ranged from 100 million euros in Italy to 758 million euros in Spain.
The alternative approach of focussing on increasing cross-border trade is cheaper and less risky. (editing by Jane Baird)