Wind Energy and Electrical Tariffs

This page is relevant for private investors in wind energy, but not for power companies, which of course know everything about their own tariff system.

Electrical Energy Tariffs
Electricity companies are generally more interested in buying electricity during the periods of peak load (maximum consumption) on the electrical grid, because this way they may save using the electricity from the less efficient generating units. According to a study on the social costs and benefits of wind energy by the Danish AKF institute (see the Links page), wind electricity may be some 30 to 40 per cent more valuable to the grid, than if it were produced completely randomly.
In some areas, power companies apply variable electricity tariffs depending on the time of day, when they buy electrical energy from private wind turbine owners.
Normally, wind turbine owners receive less than the normal consumer price of electricity, since that price usually includes payment for the power company's operation and maintenance of the electrical grid, plus its profits.

Environmental Credit
Many governments and power companies around the world wish to promote the use of renewable energy sources. Therefore, they offer a certain environmental premium to wind energy, e.g. in the form of refund of electricity taxes etc. on top of normal rates paid for electricity delivered to the grid.

Capacity Credit
To understand the concept of capacity credit, let us look at its opposite, power tariffs: Large electricity customers are usually charged both for the amount of energy (kWh) they use, and for the maximum amount of power (kW) they draw from the grid, i.e. customers who want to draw a lot of energy very quickly have to pay more. The reason they have to pay more is, that it obliges the power company to have a higher total generating capacity (more power plant) available.
Power companies have to consider adding generating capacity whenever they give new consumers access to the grid. But with a modest number of wind turbines in the grid, wind turbines are almost like "negative consumers", as explained in the section on Wind turbines in the electrical grid: They postpone the need to install other new generating capacity.
Many power companies therefore pay a certain amount per year to the wind turbine owner as a capacity credit. The exact level of the capacity credit varies. In some countries it is paid on the basis of a number of measurements of power output during the year. In other areas, some other formula is used. Finally, in a number of areas no capacity credit is given, as it is assumed to be part of the energy tariff. In any case, the capacity credit is usually a fairly modest amount per year.

Reactive Power Charges
Most wind turbines are equipped with so called asynchronous generators, also called induction generators, cf. the section on electrical parts of a wind turbine. These generators require current from the electrical grid to create a magnetic field inside the generator in order to work. As a result of this, the alternating current in the electrical grid near the turbine will be affected (phase-shifted). This may at certain times decrease (though in some cases increase) the efficiency of electricity transmission in the nearby grid, due to reactive power consumption.
In most places around the world, the power companies require that wind turbines be equipped with switchable electric capacitor banks which partly compensate for this phenomenon. (For technical reasons they do not want full compensation). If the turbine does not live up to the power company specifications, the owner may have to pay extra charges.
Normally, this is not a problem which concerns wind turbine owners, since the experienced manufacturers routinely will deliver according to local power company specifications.