Tag: Offshore Wind

From NOT A LOT OF PEOPLE KNOW THAT

The Government has today announced the results of the fifth auction of Contracts for Difference (CfD) subsidies for renewable electricity generation. Its has been a failure, and may represent a landmark moment for renewables policy.

Only 3.7GW of new capacity has bid successfully, mostly through small projects, as compared to nearly 12GW last year. There were no bids for offshore wind, the UK’s flagship renewable generator.

Participants in the auction bid for guaranteed prices, below a cap set by ministers in advance of the auction. The cap for offshore wind was set at £44/MWh (in 2012 prices, equivalent to around £70/MWh today). This is higher than successful bids in the past, yet no wind farm developers felt able to bid at this price. Wind industry claims that this is due to rising prices are implausible – CfD contracts are index-linked.

While offshore wind’s failure to bid may be surprising to some, perhaps even to the Government, it will come as no shock to those familiar with the long-term capital and operating cost trends for wind power, as revealed in audited financial statements. Costs have not been falling dramatically as the industry claimed. All around the world the wind industry is in trouble for the same reasons; costs remain high, and high levels of subsidy are needed to reward investors.

In addition, the latest auction round closes down the loophole that allowed windfarms to reap huge windfall profits by failing to activate their contracts so that they could benefit from higher prices in the open market.
The fact is that wind power, wherever, is an expensive way of generating energy. That isn’t surprising either; wind is a physically low-quality fuel and the cost of turning it into electricity is intrinsically high.

The previously successful low bids for offshore wind were unrealistic, a point we made at the time. Even when built, wind farms delayed taking up their contracts so they could operate on a merchant basis, taking advantage of temporarily high wholesale prices.

Importantly, the cap for onshore wind bids in this round of the CFD auction was higher than that for offshore, at £53/MWh (2012 prices). There were a substantial number of successful bids at this price, though they are all located in Scotland, where land rents are lower and where the developers can expect to make extra income through the infamous “constraint payments”, where a wind farm is paid to reduce output. (Demand in Scotland is low and the grid links to England are congested, limiting exports.) Even so, we doubt that these successful onshore bids are strongly economic.

Andrew Montford, director of Net Zero Watch, said:
“Government seems to have believed the spin about falling offshore wind costs, and set a low cap on bids for new contracts, thus calling the wind industry’s bluff by accident. Doubtless, the industry will now beg for new and higher subsidies, blaming inflation and supply chain problems. Government should not believe this spin. As global experience shows, wind power is extremely and intrinsically expensive.”

Dr John Constable, energy editor of Net Zero Watch, said:
“The CfD auction results are symptomatic of a wider failure of wind power around the world. The industry is in a crisis from which it is unlikely to recover, because its costs are simply too high to be sustainable. The time has come for Government to admit that renewables have failed, and to start looking at realistic energy policies.”

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There’s an interesting comment in EDP:

Andrew Harston, chair of East Wind, said: “This is a difficult time for UK offshore wind developers with massively increased costs of the order of 40% in their supply chain as a result of inflation effects and the impact of higher interest rates.

The impact of interest rates is real and significant. For years they have of course been artificially ultra low, thanks to QE. That has been in effect yet another subsidy for renewable energy, paid for by savers. It can also be argued that inflation has also been ultra low until 2021, as the pandemic depressed economic activity.

Either way, that 40% would suggest costs of around £65/MWh at 2012 prices, or £80/MWh at current prices. This is at a similar level to the market price of electricity.

Given the wider system costs involved with intermittent renewables, offshore wind certainly cannot be regarded as a bargain.

This is particularly so given the historic power price has been around £50/MWh. This has risen in the last couple of years because of two factors:

1) Higher carbon prices, which feed into the price of gas-fired power. This is the direct result of govt policy, deliberately designed to force gas power out.

2) The attack by western govts and banks on new gas and oil exploration, which has restricted supply.

It is no coincidence that just today WSJ are reporting that Biden has cancelled seven Alaskan oil and gas increases, originally granted by Trump.

And what do DESNZ say about this disaster for renewable strategy:

https://www.gov.uk/government/news/record-number-of-renewables-projects-awarded-government-funding

It may be a record number, but they are all tiny projects. Previously CfDs were reserved for large scale ones.

Nearly half, 1.5 GW, is solar capacity, which will produce a tiny amount of power, only about 1 TWh. Worse still, it will be next to useless in winter.

FOOTNOTE

Net Zero Watch state:

In addition, the latest auction round closes down the loophole that allowed windfarms to reap huge windfall profits by failing to activate their contracts so that they could benefit from higher prices in the open market

I may be wrong, but I thought the loophole was being closed from next year’s round, AR6.

Can anybody throw some light on this?