The claim that offshore wind will return money to consumers is akin to a burglar stealing £1000 from you, and then giving you £10 back!
JULY 28, 2020By Paul Homewood
h/t Robin Guenier
A grossly misleading headline from the “Independent”:
Renewable energyis on course to become the cheapest kind of power to produce in the UK, meaning householdelectricity billscould fall if savings are passed on to consumers.
In the past, government subsidies for energy projects have pushed energy bills up, but as the cost of installing and running wind and solar energy projects has fallen, renewables are set to undercut fossil fuels to the extent they could operate with “negative subsidies” – paying money back to the government.
According to research by a team atImperial College London, households could benefit when the latest round ofoffshore windfarms in the UK start producing power in the mid-2020s.
Lead researcher Dr Malte Jansen, from the Centre for Environmental Policy at Imperial, said: “Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK.
“Energy subsidies used to push up energy bills, but within a few years, cheap renewable energy will see them brought down for the first time. This is an astonishing development.”
The research examined wind power for five countries in Europe, including the UK, and focused on a series of government auctions for offshore wind farms between February 2015 and September 2019.
Companies that want to build wind farms bid by stating the price at which they will sell the energy they produce to the government.
If a company’s bid is higher than the wholesale electricity price on the UK market once the wind farm is up and running, then the company will receive a subsidy from the government to top up the price.
However, if the stated price is less than the wholesale price, then the company will pay the government back the difference. This payback is then passed through to consumers’ energy bills, reducing the amount that homes and businesses will pay for electricity.
A UK auction made headlines in September 2019 as winning companies said they could build offshore wind farms for about £40 per megawatt-hour (MWh) of power. This was a record set by these wind farms, with bids 30 per cent lower than just two years earlier.
It may be true that auction prices for offshore wind have been dropping from the obscene levels seen a few years ago. But that does not mean that households will be better off, as I will explain.
Let’s start with the OBR’s forecast of Environmental Levies, that is the cost of green subsidies added to our energy bills:
https://obr.uk/efo/economic-and-fiscal-outlook-march-2020/
As we can see, subsidy costs will carry on rising at least until 2024-25, from £11.3bn last year, to £12.5bn. This is because there are many offshore wind and other low carbon schemes which have not come on stream yet, all of which have heavily subsidised contracts.
Things will get much worse when Hinkley Point C begins operation in the late 2020s, which will add about £1.8bn to energy bills.
Even the much vaunted CfD auction last year, which the Independent claims brought prices of £40.MWh, won’t save consumers money. That £40/MWh price is actually at 2012 prices, and currently sits at £45.83/MWh, still higher than the market price.
Currently wholesale electricity prices are around £25/MWh, depressed as a result of coronavirus. However, even before the current problems, market prices were hovering around £40/MWh.
https://www.ofgem.gov.uk/data-portal/all-charts/policy-area/electricity-wholesale-markets
In the meantime, the subsidies already being paid by consumers will continue well into the 2030s. Renewable Obligation and FIT subsidies are available throughout the life of the asset.
Whilst CfDs only last for 15 years (other than Hinkley Point), the first project only came on stream in 2017. Consequently huge amounts in CfD subsidies will still be generated well into the 2030s.
The claim that offshore wind will return money to consumers is akin to a burglar stealing £1000 from you, and then giving you £10 back!
