The following analysis revisits the relationships between the reserve requirements, the capacity margins needed to maintain the reliability of supplies, the costs of intermittency, the capacity credit for intermittent generation, and several other quantities. It is not put forward as a substitute for full-blown modelling studies, but does provide a reminder of principles and an independent means of checking results. It rests on a few key parameters, principally the means, standard deviations and ranges of the frequency distributions of the various quantities. Whilst this is a simplification, it helps to make the underlying relationships more transparent and enables the analyst to explore the effects of changes in assumptions. It begins with a basic case and then relaxes the assumptions.
There are three questions which recur throughout the paper:
- What are the required additions to reserves to maintain the reliability of supplies when intermittent generation is substituted for thermal generation? It is unquestionable that the margin will need to rise when the variance of thesupplies increases if supply reliability is to be maintained—but by how much? An alternative way of putting the question is what is the ‘capacity credit’ (defined below) that can be given to intermittent generation?
- What is the associated increase in system costs that would result from building more wind and less thermal generation?
- At the project level, how can we compare the costs of a large wind farm say with the thermal alternative? To answer this, we need to know the answer to (1) above—how much extra ‘reserve’ or ‘backup’ capacity is required for the intermittent resource, and of course what itscosts will be.
The paper does not answer questions as to what the optimum reserve margin should be or how it should be determined. There is a long debate on the role of markets and regulation for determining reserve margins which this paper does not get into. Suffice it to say that whatever policy position is taken: (a) in actuality there is at all times a reserve margin, which is the difference between available capacity and demand; (b) this quantity is of interest and needs to be monitored since when it declines the probability of losing load increases; (c) when for policy purposes estimates of the costs of introducing intermittent resources onto the system are being made it is necessary to compare like-with-like such that the costs of introducing them, including the costs of maintaining the reliability of supplies, can be compared with the costs of the alternatives.