Revealed: the great wind farm tax ‘con’
By Paul Homewood
The Telegrpah reports:
Ministers have been accused of planning a U-turn that would see consumers fund new onshore wind farms through green levies.
Critics described the proposal as a con, and said the Conservatives’ policy had been “crystal clear” that the subsidies would stop.
Under the plan, households would still be forced to pay millions of pounds on their energy bills to fund new wind farms – but the payments would no longer be defined as subsidies.
The wind industry’s plan hinges on the fact that no new power plants are commercially viable to build at the moment without extra financial support from bill-payers.
If wind farms can be built at lower cost to consumers than alternatives, such as new gas plants, then payments to fund them should no longer be classed as “subsidy”, the industry argues.
“Hard-working energy consumers will not be conned by a change in name. The Conservative manifesto was crystal clear that public subsidies for onshore wind will stop"
Owen Paterson, Tory MP and former environment secretary
Andrea Leadsom, the energy minister, admitted that the proposal for so-called “subsidy-free” contracts would not in fact be “cost free” for bill-payers, but said the Government was “listening carefully to industry on how it can be delivered”.
Opponents called the plan “outrageous” and said that the proposals under consideration would still constitute subsidies.
Owen Paterson, the Tory MP and former environment secretary, said: “Hard-working energy consumers will not be conned by a change in name. The Conservative manifesto was crystal clear that public subsidies for onshore wind will stop.
Owen Paterson Photo: GEOFF PUGH
“There is absolutely no place for subsidising wind – a failed medieval technology which during the coldest day of the year so far produced only 0.75 per cent of the electricity load.”
The Conservatives pledged in their 2015 manifesto to “halt the spread of onshore wind farms” and vowed to “end any new public subsidy” for the turbines.
More than 5,000 wind turbines have so far been built onshore in the UK under efforts to hit renewable energy and climate change targets.
Consumers are already estimated to pay in excess of £800 million a year in subsidies for the turbines, adding about £10 to an annual household energy bill.
David Cameron has said that Britain does not “need to have more of these subsidised onshore”.
But the proposal being considered by the Department of Energy and Climate Change (DECC) would see onshore wind farms continue to qualify for an existing subsidy scheme that guarantees developers a fixed price for electricity generated.
The most recent onshore wind farm contracts awarded under the scheme, early last year, were at prices of about £80 per megawatt hour (MWh) – more than double current market prices of about £35/MWh. Consumers will fund the difference through green levies on their energy bills.
John Constable, of the Renewable Energy Foundation, a group critical of renewable energy costs, said it would be “outrageous” to regard the proposal DECC was considering as “subsidy free”. “It is just spin doctor stuff, it’s playing with words,” he said.
Glyn Davies, the Tory MP, a member of the energy select committee, said: “I don’t think we should be introducing mechanisms that continue with subsidy – just to say there’s no subsidy when there actually is.”
He said he would be “very concerned” if ministers continued payouts to new onshore wind farms.
Fellow Tory Peter Lilley said the wind industry’s proposal “wouldn’t be subsidy-free” and that wind farms should not receive the same support as gas plants, because the power they produced was not reliable and was therefore worth less.
Mr Paterson added: “If we must support energy, we should help develop combined heat and power which increases efficiency from 50 per cent to 80 per cent or we should develop new technologies which actually work.”
A DECC source insisted energy secretary Amber Rudd was “crystal clear that the manifesto commitment to end new public subsidies for onshore wind and give local people the final say is delivered to the letter”.
“Any idea that doesn’t do this is simply not going to get the green light,” the source said.
The influential think-tank Policy Exchange has said that “subsidy-free” contracts should be offered to support the construction of new onshore wind farms in Scotland and Wales, as well as replacing old turbines with new, far bigger ones.
There are a number of problems with the analysis that £80/MWh can be regarded as subsidy free.
For a start, the offer of a guaranteed price to onshore wind and other renewables is itself a form of subsidy, which is not available to gas power plants. This is because it is offering something over and above what the market is. In normal circumstances, if a buyer offers a such a guarantee, he would expect a reduction in the usual market price in return.
Moreover, the way the Contracts for Difference scheme works gives renewables preferential access to the market, in effect a guarantee that all of its output will be purchased. This is because renewable power can be sold as cheaply as is necessary to undercut other suppliers, safe in the knowledge that the government will top up that price to the full guarantee. If necessary, there is nothing to stop an onshore wind farm selling its output at 1 penny per MWh. Again, in normal market conditions, such a guarantee to buy all that can be supplied would only be given in return for a discount.
But there is one fundamental point which the Telegraph article has not addressed. Their link to £80/MWh would be regarded as “subsidy-free”, takes us through to the Committee on Climate Change’s Power sector scenarios for the fifth carbon budget, published last October.
This is the key section:
They even have this pretty graph. Where there is no carbon price, the cost of gas generation is just slightly over £50/MWh.
In other words, wind power can only become competitive by loading gas generators with a huge carbon tax.
But it gets worse!
As the CCC notes:
So even if the cost of wind power comes down to £60/MWh eventually, the true cost, including that of providing standby capacity, would still be £70/MWh.
There is of course a very simple answer to all of this – let onshore wind and other renewables compete on a level playing field with gas generation, with no guaranteed prices or preferential access to the market. If they can eventually get costs down as promised, they should then be able to stand on their own two feet.
In any event, the last thing we should be doing is locking in higher costs for the next fifteen years now, if the darned things are going to be so much cheaper in a few years time.