As part of an effort to curb energy costs, wind farm operators will no longer be allowed to retain excessive profits through a revision of subsidy regulations.
RenewableUK warned that the plans set out last week by the UK government for this year’s round of auctions for Contracts for Difference – contracts to generate “clean power” – will not maximise investment in wind, solar and tidal projects.
However, what the UK government has actually done is eliminate a loophole that permitted wind turbine operators to manipulate green energy agreements to exploit surging electricity prices and RenewableUK is obviously not happy about it.
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In June 2022, the Government examined changes to the rules governing Contracts for Difference (“CfD”) projects to prevent developers from delaying their participation in the support scheme in order to take advantage of soaring wholesale market electricity prices. During a debate on updates to the CfD regulations in the House of Lords, energy minister Lord Callanan said the government has already made it clear to the industry that such actions are “not within the spirit of the scheme … These regulations must be made now, ahead of the next CfD allocation round, which is planned for March next year.”
Despite concerns from developers regarding escalating expenses that may jeopardize efforts to achieve net zero emissions by 2050, this measure has been implemented.
Typically, most offshore wind projects in the UK are constructed with the aid of government contracts that ensure a predetermined revenue, which justifies the cost of constructing and operating the turbines.
Developers participating in this initiative establish a set cost with the government for every unit of electricity produced during the first 15 years of the wind farm’s operation. If the wholesale price in the market happens to be lower than the agreed-upon rate, the government compensates developers for the disparity through a fee incorporated into consumer bills.
The UK government is currently altering the regulations to prohibit developers from postponing the start of their contract for “commercial gain.” As an article published on Share Talk noted, in documentation published last Wednesday the Government stated: “Our aim with these adjustments is to ensure timely commencement of contracts for generators who have already begun commercial operations.”
The UK is facing pressure from the US, as President Joe Biden has introduced a $430bn package of tax breaks and support for green industries, leading to concerns that investors may opt for the US over the UK.
Michael Chesser, the economics and markets manager at RenewableUK, a trade group, stated that “at a time when developers are already having to deal with massive global increases in costs, this step will put further pressure on the viability of renewable energy projects.”
Jamie Maule, a research analyst at Cornwall Insight, warned that if the high cost of capital cannot be compensated with an increase in return, there may not be enough funds for renewable projects to succeed, potentially stifling competition and discouraging investors and developers from bidding.
What RenewableUK doesn’t mention is the enormous profits in the current climate of high wholesale gas and electricity prices for those wind farm owners who are not on a fixed price contract with the Government. While high costs are at unsustainable levels for businesses and households, these wind farm owners are making a fortune. The market price for electricity is generally set by the price of dominant gas-fired generation, where costs have climbed. But wind farm owners do not have fuel costs, meaning the electricity price increase is potentially all upside. Most wind farms currently operating in Britain also receive subsidies too.
Money Given to Wind Farms for Doing Nothing
Apart from making money off postponing the start of their fixed price contract or high electricity prices, wind farms have also been paid to stop generating power.
The electricity system operator in Great Britain, a private company called National Grid, has the responsibility to identify surges and shortages and balance supply and demand accordingly. As part of this process, occasionally low demand in Scotland, for example, and congestion on the interconnectors to England and Wales will require National Grid to reduce power flow from wind generators; in these cases, it will ask specific wind farms in affected areas to reduce output in order to avoid damage to the system in Scotland. Ultimately electricity consumers pay for these so-called “constraint payments” through their bills.
According to a spokesperson for the Renewable Energy Foundation (“REF”), a UK charity organisation, this practise can provide “a perverse incentive for [wind farm developers] to seek out areas with low demand and weak grid connectivity,” therefore it can encourage more operators to take advantage of constraint payments by constructing more farms in such areas.
At the beginning of 2020, figures provided by REF showed that constraint payments have reportedly totalled up to £650m over the last decade as compensation to wind farm owners.
REF’s analysis found that in 2020 some individual wind farms were agreeing to not produce up to half of their potential output in order to avoid overwhelming the grid. Three large wind farms in Scotland, for example, were paid a total of £24.5 million to fail to produce about half of their potential output.
Craig Mackinlay, who leads the Net Zero Scrutiny Group of Conservative MPs, said early last year that the constraint payments were an example of unnecessary costs being charged to consumers.
Despite the fact that last year wind only actually generated a quarter of its current capacity, the ambition of the UK is to increase wind to 40 GW by 2030, almost double current capacity. The total capital cost to double the UK’s wind power generation is £154 billion. With approximately 28 million electricity customers in the UK, the additional cost for doubling wind power capacity is $6,626 (£5,492) per customer. And then add to that the cost of CfD projects, constraint payments and subsidies.
The Even Darker Side of Renewable Energy
As if all of the above was not enough, solar and wind farms, so-called renewable energy sources, are environmentally destructive. The low energy density of sunlight and wind results in solar and wind projects requiring vast areas of land. To supply materials and components to make the equipment requires vastly more mining for raw materials.
Solar farms also produce more toxic waste and devastate wildlife habitats. Additionally, there is the human cost: solar panels and batteries made in China, for example, use forced labour – incarcerated Uyghur Muslims against whom genocide is being committed.
Wind turbines are a danger to birds. For example, at the end of last year, a court ruled that a proposed wind farm in Australia could not go ahead as it was in the flight path of and would threaten the survival of a rare parrot. And they’re not only a danger to birds. A wind project planned off the shores of the East Coast of America will endanger the remaining population of the North Atlantic Right Whales, a species that is already on the brink of extinction. Additinally, wind turbine blades are an environmental hazard as they are sent to landfills because it’s too expensive to recycle them.
Sources for this article include:
- Wind farm operators will no longer be permitted to retain excessive profits, Share Talk. 17 March 2023
- UK risks missing out on investment in renewable energy projects under latest Government plans, RenewableUK, 16 March 2023
- Constraint Payments: Rewarding Wind Farms for Switching Off, Future, Power, Technology
- Wind farms were paid not to generate half their potential electricity, The Telegraph, 19 February 2022
- How the energy price crisis turned wind farms into giant money spinners, The Telegraph, 3 October 2022
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