Tag: wind lobby

Is Wind Power Cheaper Than Gas?

Which is cheaper – offshore wind or gas power?

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

OFFSHORE WIND POWER V GAS POWER?

Which is cheaper – offshore wind or gas power?

We always seem to go round in circles when we discuss this! Politicians and the wind lobby always refer to the official Levelised Costs, last published by the BEIS in 2023, often dishonestly including Carbon Pricing in the cost of gas power, even though it is a TAX, not a COST.

Others point out that you cannot simply compare levelised costs, as they do not include the indirect costs associated with intermittent renewables, particularly the need to pay for standby capacity.

In fact, the only valid comparison is to compare the TOTAL COST of wind power, with the FUEL COST of CCGT power stations. The latter, of course, will still have to be fully manned and maintained whilst on standby, so those costs are in essence fixed. The only extra cost they incur when actually generating is fuel itself.

The following analysis is based wholly on the assumptions used in the BEIS Electricity Generation Costs report, referred to above, and other official data.

In 2023, gas power supplied 101 TWh, a third of total electricity in Great Britain.

The latest government mid-range projections for the price of gas are around 70p/therm, which is £24/MWh. With a fuel efficiency of 53%, that works out at £45/MWh of electricity produced, or an annual total of £4.5bn.

https://www.gov.uk/government/publications/fossil-fuel-price-assumptions-2024

Now we come on to offshore wind power.

The BEIS costings assumed capital costs of £2200/kW – this is the top of their range, which is more realistic, given the massive increase in strike prices offered in last summer’s CfD auction. To generate 101 TWh, we would need 26 GW of new offshore wind capacity, which is more than we have presently. That works out at a total capital cost of £57 billion.

To this can be added the operating costs of offshore wind, which the BEIS estimated at £19/MWh.

So, over a life of fifteen years, operating costs plus capital come to £86 billion. The cost of natural gas over the same period to produce the same amount of electricity would be £67 billion.

Even then wind power costs are understated, because we should add on the cost of grid upgrades, projected at over £100 billion, or at least the appropriate share for the extra 26 GW.

We know that wind power already on the system costs considerably more than the BEIS’ optimistic calculations. But even using these for new wind farms, it is clear that CCGT is much cheaper.

Why Wind Farm Constraint Payments Are Not the Same as CCGT Ones

Further to the post on constraint payments, it is worth reading John Constable’s excellent explanation below.

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

Further to the post on constraint payments, it is worth reading John Constable’s excellent explanation below.

It ha\s often been claimed by the wind lobby that gas generators are paid for constraint, so why pick on wind farms? John has the answer:

Generators may be asked to reduce generation, even if they are contracted in to the market, because there is an error in the demand forecast, and less electricity is required than was expected. In such cases, a conventional fossil-fuelled generator will actually pay to reduce its output, because it is saving fuel. The generator’s financial position is protected because it retains that part of its price over and above the fuel cost. In other words when it is contracted into the market and is for some reason then compelled by National Grid to stop generating it does not lose income.

Constraint payments to wind farms to reduce output started in 2010. Prior to that, National Grid usually called on gas and coal power stations to reduce electricity output which is the cheaper option for the reason described above. There is a fundamental difference between costs of reducing output between conventional power stations and wind powered generators. If a fossil-fuelled power station reduces output, savings are made on the cost of the fuel which need not be used. As a result of this, fossil-fuelled power stations submit negative bids to the system operator indicating they will pay National Grid a certain sum per MWh if asked to reduce output. Conversely, wind farms do not have fuel costs, but if they are called upon to reduce output, they lose subsidies such as the Renewable Obligation Certificates (ROC) and (prior to 1 August 2015) the Climate Change Levy Exemption Certificates (referred to as Levy Exemption Certificates, LECs). This, in part, explains why wind generator participants in the Balancing Mechanism submit positive bids to the system operator indicating that they need to be paid by National Grid to reduce output.

John’s full analysis is here.

The important point he stresses is that all generators receive the income for the electricity they have contracted to supply, even if they switch off at the request of the grid. For a gas generator, this means they still get their income, but don’t have to pay for fuel. They are therefore more than happy to pay the Grid to switch off.

Wind farms are the opposite. If they switch off they lose their subsidies, which are payable over and above the market price they will receive anyway.

For those not familiar with John’s Renewable Energy Foundation, it provides a wealth of data on renewable energy generation, drilled down to the individual generators themselves.

Bookmark his site here: