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The Davey Tax

April 23, 2014

By Paul Homewood

 

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http://www.bbc.co.uk/news/business-27121801

 

Ed Davey has announced the first tranche of offshore and biomass energy projects under the new Contracts for Difference. The list of projects and summary are shown below.

 

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https://www.gov.uk/government/news/government-unveils-eight-major-new-renewables-projects-supporting-8500-green-jobs

 

From the DECC Press Release:

Eight major renewable electricity projects are unveiled as part of the government’s world leading electricity reforms, giving a massive boost to green growth and green jobs.

By 2020, the projects will provide up to £12 billion of private sector investment, supporting 8,500 jobs, and they could add a further 4.5GW of low-carbon electricity to Britain’s energy mix (or around 4% of capacity), generating enough clean electricity to power over three million homes.

Once built, the successful projects will contribute around 15TWh or 14% of the renewable electricity we expect to come forward by 2020, helping to put the UK well on the way to meeting the UK’s renewable energy target. They will also reduce emissions by 10 MtCO2 per year compared to fossil fuel power generation.

 

 

It is interesting to note that the DECC Press Release also states:

More renewable electricity projects applied to the process than we can afford.We originally received 57 applications

Funny that! I thought that renewable energy was the best thing since sliced bread, would create millions of jobs and we could not get enough of it.

It also suggests that the subsidy level has been set far too high, if the process has been so over-subscribed.

 

My immediate thoughts are:

 

1) Oddly there is no mention at all in the Press Release of the potential subsidy cost, but the BBC report that cost “up to £1bn per year”. In fact, this is almost certainly an underestimate, as it equates to £66/MWh. The current offshore wind is subsidy is over £100/MWh, and bio is about £60/MWh. (More on this below).

 

2) The figure of 15TWh implies the following capacity utilisation. These figures are actually close to current ratios, according to the DECC Energy Stats.

 

Capacity MW Estimated
TWh
Capacity
Utilisation %
Offshore 3184 9.2 33
Bio 1364 5.9 50
Total 4548 15.1 n/a

 

 

 

3) Using these output stats, and assuming current strike prices * and current prices for wholesale power of about £50/MWh, the subsidy will work out at:

 

TWh pa Strike price /MWh Subsidy
/MWh
Total
Subsidy
£bn pa
Offshore 9.2 162 112 1.03
Bio 5.9 110 60 0.35
Total 15.1 1.38

* Strike prices in the Energy are set at 2012 prices, The above prices assume 4.5% increase in CPI since then.

 

The only way for the subsidy to be as low as a billion is for current wholesale prices to increase much faster than inflation over the next few years. Either way, the consumer will pay the bill!

 

4) Again, in the BBC report but not in the Press Release, Davey is quoted as saying:

“the measures would add 2% to household energy bills by 2020”

 

This is highly optimistic, and even then extremely economical with the truth. According to DECC, electricity sales last year totalled £33,990 million.

So, if the BBC figure is right (which presumably comes from Davey), a billion would work out at 2.9%. If my figure is correct, this jumps to 4.1%.

But it does not end there. Domestic users account or about 36% of total electricity sales, the rest has to be paid for by industry, the public sector or transport. So, one way or another Joe Public has to foot the whole bill, (sorry Joe), either through taxes, higher prices or worst of all lost jobs.

There are some 26 million households, so a subsidy of £1.38 billion works out at £53 per household. This is more like an 11% increase in bills, and all just to subsidise 4% of our total electricity supply.

 

5) The claim is made that “once built, the successful projects will contribute around 15TWh or 14% of the renewable electricity we expect to come forward by 2020”.

Total electricity generation last year was 356 TWh, so 15TWh = 4%, hardly impressive.

 

6) The claim is also made that these projects will:

generate enough clean electricity to power over three million homes.

This, of course, is a total con, because it totally ignores the other 64% of non-domestic users. It also fails to explain who will supply these three million homes, when the wind does not blow.

 

7) A figure of £12bn of investment is bandied around. Even on the BBC’s optimistic figure, the subsidy of £1bn for 15 years comes out much greater then the alleged investment.

And, of course, on top of this subsidy they also receive the market price for electricity.

How can we possibly justify paying out more than the original investment as a subsidy?

 

8) Then there is the usual “green jobs” crap.

It is claimed that 8500 jobs will be created, (although they don’t say how many are short term construction jobs). But assuming these are permanent jobs, a billion a year equals £117,647 subsidy per job for each year!

Even without counting the number of jobs that will be lost as a direct result of these policies, this truly is the economics of the mad house!

 

9) Finally, it is announced that more projects will be announced in the Autumn, so look forward to more of the same.

Whenever politicians say they want to cut your electricity bills, call them out for the liars they are.

23 Comments
  1. Mikky permalink
    April 23, 2014 8:42 pm

    Maybe time to bend with the wind a bit, think of it as paying off the mafia to avoid Green Zombie Apocalypse.

  2. Chris Manuell permalink
    April 23, 2014 8:53 pm

    “This is more like an 11% increase in bills, and all just to subsidise 4% of our total electricity supply.” Electricity is only a seventh of our total energy usage so Wind only currently produces 1% of our total energy.

  3. April 24, 2014 6:36 am

    It’s difficult to argue against wind farms without getting your head bitten off or people treating you like a crazed loon but this is a good starter for 10. Will share with my adoring fans.

  4. Joe Public permalink
    April 24, 2014 7:02 am

    The Government’s press release is deliberately misleading.

    It states the proposals ‘support’ (note to Paul – you’ve fallen into their trap, they do NOT create), 8,500 jobs. But omits to offer a figure for jobs destroyed because the work is exported to less-green (I.e. Not so stupid) countries.

    They also re-use the deception of implying the subsidies add a % to household bills, ydeliberately omitting the fact that the increased cost of all UK produced goods and services not exported have to be paid forty UK households too.

    • Brian H permalink
      August 11, 2014 12:56 am

      I am reminded of Spanish shock at discovering that for every green energy job they ‘created’, 3 were lost elsewhere in the economy.

  5. April 24, 2014 7:13 am

    Good article, the omission of onshore wind projects, which should be cheaper to finance than offshore, indicates to me that subsidies are being curtailed and only the connected few will have chance to recoup losses on already planned projects.

  6. tom0mason permalink
    April 24, 2014 7:50 am

    So the future looks bright for the French as we will have to import more of their nuclear derived power in a bid to try and keep our national grid from disintegrating.
    If all of this renewable power were to be put on the grid then I would expect to see some pretty major grid disruption coming.
    😦

    • Brian H permalink
      August 11, 2014 1:00 am

      In France or elsewhere, it remains inevitable that all intermittent power supply created must be matched by retention or addition of an equal amount of dispatchable power, often upgraded to cope, and much more expensive in both capital and operating expense. So, off the top, double or triple any cost estimates for renewables.

      • tom0mason permalink
        August 11, 2014 7:05 am

        I was, in my poor way, highlighting the fact that the UK is reliant on foriegn power generation directly, and that it is reliably above that generated by all UK intermittent green methods.
        My point also is that the French have the means to export power to the UK, the reverse is rarely the case and that our building of more windmills and solar panels, would probably cause the up-grading of the French interlink to keep the UK’s lights on.

  7. shep permalink
    April 24, 2014 8:51 am

    and the very day after total UK wind input drops to less than 1% of demand http://www.gridwatch.templar.co.uk/

  8. It doesn't add up... permalink
    April 24, 2014 12:12 pm

    You may wonder why the CHP project is given as 299MW. The answer is that they avoid a whole tranche of bureaucracy by being under 300MW.

    It’s also worth noting that the capacity of these projects can be reduced by anything up to 30% while still getting the CFD guaranteed prices. The CFDs are a can of worms of themselves – and the likely impact on the electricity market and operation is chaos.

  9. catweazle666 permalink
    April 24, 2014 4:53 pm

    “This is more like an 11% increase in bills, and all just to subsidise 4% of our total electricity supply.”

    For about 20% of the time.

    Each and every milliwatt of which will of course have to be covered by a real generator, running in the most inefficient part of its envelope.

    That’s leaving aside the question of how much the lifespan of these nightmare devices has been over-estimated…

    • Brian H permalink
      August 11, 2014 1:04 am

      Large training centers qualifying repair and maintenance crews to operate at height in ocean wind farms are ramping up as we speak. Or not …

  10. Craig King permalink
    April 24, 2014 5:48 pm

    Unfortunately people’s memories are very short. In a year or two they will have forgotten what they are paying now and will just put their heads down and keep on going. Politicians depend on this very human characteristic.

    In the meantime “green energy” is this generation’s mono-rail.

  11. cerberus permalink
    April 24, 2014 6:01 pm

    ANY subsidy level is too high.

  12. Chilli permalink
    April 25, 2014 9:23 am

    Typo at the end of point 4) above. Should be £1.38 billion not million.

  13. Claire permalink
    April 25, 2014 6:04 pm

    I really can not understand why we are still using wind, solar type systems for energy when there is FREE energy devices available. Go to the site below and you will be able to download the open source document/plans for a quantum energy generator, this is just one of Tesla’s inventions but it has been remodeled. Other countries are now getting into this especially asia., and there are now working quantum energy generators that are powering homes and this is FREE energy. Everyone should look into this at the very least, especially our government. http://hopegirl2012.wordpress.com/2014/03/25/qeg-open-sourced/

  14. manicbeancounter permalink
    April 27, 2014 8:12 am

    Under point 4) you quote Ed Davey as saying
    “the measures would add 2% to household energy bills by 2020”
    You then look at the costs of electricity only. The DECC will also include gas in household energy bills. Something that is easy to forget is that the long-term emission reduction targets involve switching most households from gas to electric.

    • Brian H permalink
      August 11, 2014 1:06 am

      A serious candidate for Folly of the Decade.

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