As the number of wind turbines rise, we’ll see more and more days when this source of power rises to 20% or more of total UK generation. If current trends persist, this will take the price of power down to £30 or below. This is, of course, is exactly the phenomenon we see in Germany today, with prices often going close to zero or below on high wind days.

If the numbers in this note are true, they suggest that the subsidy paid to wind is balanced by a lower wholesale price in the electricity market. That’s the good news for consumers, and largely reflects the balance of supply and demand in the UK electricity pool. More wind means fewer high cost generators have to be incentivised to enter the market by greater than average power prices.

However the effect of this shift in the relationship of supply and demand had profound consequences for the profitability of fossil fuel generators. At the moment low power prices mean that many gas-fired power stations aren’t covering their full costs. And, as a natural result, few investors will want to build new fossil fuel plants. This is no bad thing, you might say, but it does mean that without massive intervention – in effect a renationalisation of energy generation or a guaranteed price for electricity – the rising number of wind turbines will inevitably destroy fossil fuel generation and eventually produce a highly unstable electricity market. This sounds an obvious point but it seems ignored by policymakers (and indeed by protagonists of renewable power).

Note about method

National Grid Buy and Sell prices are not precisely the same as 'market' prices. Each half hour, the Grid works out what demand is likely to be and what each generator has said it will produce. Then it estimates whether the whole UK system is likely to be in deficit or surplus of power. If the position is a deficit, it buys additional electricity to balance supply and demand. If there's a surplus, it does the opposite. When it is buying, it directly sees the prices but it doesn't exactly know what it would get if it were selling electricity. So it uses an estimate from the electricity market.

In a separate analysis, I have also looked at the System Sell price and the impact of different levels of wind generation. The curve is the same. When the wind isn't blowing, prices are about twice the level when wind is generating 20% of the UK's need. And, perhaps importantly, when wind generation rises above about 12% of UK generation, the price that National Grid obtains for the surplus electricity begins to fall sharply. We've seen, for example, several instances in the last few weeks of near-zero selling prices. In other words, in order to get someone to buy greater volumes of power National Grid had to accept very low prices indeed.

[1] Assumes total UK net generation plus imports less exports equals about 330 TWh.

[2] These are called the System Sell and System Buy Prices or SSP and SBP.