Paid to switch off? The truth about wind farm compensation

Some wind and solar farms receive compensation when they are told to reduce the amount of electricity they generate. Many receive nothing at all. It depends on why they were turned down, the kind of grid connection they have and, in some cases, if they’re part of a Government support scheme.

Complicated, right? Relax, put the kettle on, let’s take it one step at a time! We’ll start with some numbers.

In 2024 wind farms in the Irish Republic lost 1.3 million megawatt hours (MWh) of potential electricity generation because EirGrid told them to reduce generation or to switch off completely. That's just over 10 per cent of all the electricity they could have produced.

According to MullanGrid, a company that specialises in renewable energy grid connections, this is about €65 million in lost revenue for our wind farms.

Meanwhile, EirGrid’s Annual Electricity Transmission Performance Report for that year says total compensation paid to both wind and solar farms combined (though mostly wind farms) was about €20 million.

So yes, compensation exists, it can happen, but most of the time wind farms don’t get compensated so why are some projects paid and others not?

Firm and non-firm

Before we go any further, we need to explain two technical terms that are at the heart of this: firm and non-firm grid connections.

Don't worry, it’s not that technical.

Think of a grid connection contract as an agreement between a wind farm and EirGrid. The wind farm agrees to generate electricity. EirGrid agrees to transport that electricity across the national grid, and then ESB Networks take it to homes and businesses, wherever it is needed.

The wind farm owner pays for use of the national grid, but not all contracts offer the same level of certainty.

In a firm contract EirGrid is essentially guaranteeing that, in normal circumstances, if your wind farm generates power they will get it to where it needs to go.

A non-firm contract is more like EirGrid telling the wind farm that you can generate electricity, and they’ll do their best, but there’s no guarantee they’ll be able to transport it.

Some wind farms have firm connections. Some have non-firm connections. Others have a mixture of the two. And yes, you still need to pay EirGrid for using the network either way.

In Ireland, most older and smaller wind farms have a firm connection. For newer ones, because the electricity grid hasn’t been significantly reinforced in recent years, it’s more challenging.

In parts of the country like west Galway, the north-west and the midlands new projects can’t get a firm connection date. In other places they could be waiting five or six years for a firm connection.

Over time, if the electricity network in an area is upgraded, some non-firm connections can become firm ones.

All of this matters because whether a wind farm gets compensated depends a lot on the type of connection it has, firm or non-firm.

Next, we’re going to look a look at the two main types of dispatch-down on the electricity grid because the reason you’re turned off makes all the difference.

We’re going to explain each of them – constraints and curtailment – and how they relate to whether wind farms have firm contracts or not.

Constraints: A local bottleneck

Imagine it is a very windy day in Mayo.

The wind farms there are ready to produce plenty of electricity. Homes and businesses elsewhere need that electricity. But the power lines and substations connecting Sam Maguire’s new home to the rest of the country cannot carry all of it.

Think of it like having plenty of water in a reservoir but a pipe that is too narrow to move it quickly enough. The water is available. The problem is the pipe.

When something similar happens on the electricity grid, wind farms can be told they must reduce their output. This is called a constraint.

If a wind farm told to reduce generation has a firm connection then they are entitled to compensation. Wind farms with a non-firm connection get nothing.

Curtailment: A system problem

Curtailment is different. It’s a system-wide issue. As we add more wind and solar power, EirGrid has been changing how the system operates so it can safely use a larger share of renewable electricity. But there are still rules that restrict the amount of wind and solar power on the system.

One rule, for example, says that renewable energy can provide a maximum of 75 per cent of total electricity demand at any one time,

On a bright and windy day wind and solar farms could produce almost all the electricity we need. The renewable power is available, but the system may not yet be able to operate safely with all of that clean energy.

So some renewable generators may then be told to reduce their output. This is called curtailment.

Under the current arrangements, wind farms are not compensated for curtailment. There is, however, an exception.

Some newer renewable projects, which will be built in the coming years, through the Government’s Renewable Electricity Support Scheme, known as RESS, can qualify for compensation in certain curtailment situations. Other projects built outside the RESS will get nothing.

But it’s important to remember EirGrid plans to raise that 75 per cent limit to 95 per cent by 2030 and 100 per cent by 2035 so this issue should resolve itself over time.

But why compensate at all?

That’s a fair question. After all, if a wind farm is not producing electricity, why should it be paid?

The answer is that compensation is really about deciding who carries a risk created by the electricity system.

Say I'm a farmer with 50 head of cattle (bear with me here!). I've reared them, paid for their feed, looked after them, dosed them, called the vet when needed and put in all the work required to get them ready for sale.

When the time comes to sell them, I hire a transport company to come to my farm, load up the cattle and take them to the mart. But, when the lorry arrives, only 42 cattle get off. Eight are gone.

Now imagine the transport company shrugs its shoulders and says that's my problem. Well, it's not hard to see what happens next.

To cover what I have lost on those eight animals, I'll have to charge more for the remaining 42. That's essentially the logic behind compensation. Why should the farmer be the one to carry all of the risk?

Wind farm owners don't build or operate the electricity grid. That's EirGrid and ESB Networks' job. We pay to use it.

A company bidding for a contract to build a wind farm must work out how much it will cost to develop, finance and operate the project. It must also estimate how much electricity it will actually be able to sell.

If the company expects to lose a significant share of its generation because of limitations on the grid, it must take that risk into account. It may have to look for a higher price for the electricity it can generate.

Consumers will ultimately end up paying that higher price.

Compensation can also make it less expensive to finance a renewable energy project. Banks and investors generally charge more when an investment carries greater risk. If a project has some protection against circumstances outside its control, it may be able to borrow money more cheaply.

That can help renewable energy projects offer lower prices when they compete for Government contracts.

Put simply, less risk can mean lower costs, and lower costs can help to reduce electricity prices.

That does not mean compensation is free. It’s a cost that still has to be met within the electricity system. The purpose is to allocate the risk in a way that helps keep the overall cost of developing renewable energy as low as possible.

Could the rules change?

Possibly. The EU has proposed new rules on how compensation might work but there is an ongoing court case to confirm how these new rules would apply in Ireland.

Renewable energy companies involved in the case have argued that the current Irish approach does not compensate some generators properly when the grid cannot take their electricity.

The outcome could lead to some renewable generators receiving more compensation in the future. However, until the court gives its decision and the consequences are clear, we cannot say precisely what will change.

Whatever the outcome, the basic question will remain the same: who should carry the financial loss when a generator is ready to produce electricity but the power system cannot use it?

Compensation is not the solution

The real solution here is not to pay wind farms to stop generating electricity, it’s to avoid having to turn them down or off in the first place.

That means building more power lines and substations. It means modernising how the electricity grid is operated. It also means developing more energy storage, making electricity demand more flexible and allowing technologies such as wind farms and batteries to share grid connections.

Every unit of renewable electricity lost through dispatch down is a missed opportunity. It is clean electricity that could have powered a home, charged a vehicle or helped a business reduce its use of imported fossil fuels.

Compensation can help manage the financial consequences but it doesn’t fix the underlying problem.

Wind energy is most valuable when it is powering our homes and businesses, not when turbines are turned down. By strengthening the grid and modernising how the electricity system operates, Ireland can turn today’s lost power into lower emissions, greater energy security and better value for consumers.

Compensation may manage the problem, but a grid capable of using all our clean, home-grown energy is the solution.

With thanks to Rory and Peter in MullanGrid for their help and assistance.