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Current Costs of British Renewables Subsidies per Household

October 14, 2019

By Paul Homewood

 

 

h/t Philip Bratby

 

 

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The total annual renewables subsidy impact on UK household cost of living is £9 billion — which comes to £340 per year per household.

The low and much-publicised offshore wind bids for Feed-in Tariffs with Contracts for Difference (FiTs CfDs) continue to confuse many analysts, even those from whom one might expect clear-eyed caution. A writer for CapX (“What is the point of Corbyn’s nationalised wind farms?”), to select an example almost at random, quite correctly takes issue with the Labour Party’s reckless plans for major public investment in further offshore wind, but does so on the mistaken ground that “offshore wind is a big success story […] delivering ever more clean energy, at ever lower prices, for a fraction of the price of Labour’s plan”.

However, and as a matter of fact, none of the low-bidding wind farms have actually been built, and the 8.5 GW of operational offshore wind capacity which is “delivering” is without exception very heavily subsidised. Indeed, the most recently commissioned offshore wind farm, the giant 588 MW Beatrice of the North East coast of Scotland, which only became fully operational in the summer of 2019, has a CfD strike price of £140/MWh now worth £158.73/MWh, roughly three times the wholesale price, and indeed about three times the almost certainly unrealistic strike prices bid in the most recent CfD auctions. It is obviously premature to say that the observed fall in CfD prices bid is a “success story”. The CfD contracts are very far from firmly binding, and the penalty for abrogration is trivial. It seems likely, bordering on certain, that they are a sly and low risk publicity gambit, intended to secure a market position, and inhibit competition, in the hope of obtaining a better price by whatever means at a later date.

And of course the cost of electricity from existing offshore wind power has most certainly not fallen; it continues to be very high, like all the other renewable generators in the UK fleet. Perhaps it is worth reminding ourselves just how much that subsidy currently amounts to and how much it is costing British households.

Apart from the Contracts for Difference (CfD),  there are two other systems of subsidy, the Renewables Obligation (RO), including the Feed-in Tariff (FiT). The costs of these are recorded in the Office for Budget Responsibility’s Economic and Fiscal Outlook, the most recent issue of which was published March 2019 (a new release is due shortly). reports the current and projected costs of these subsidies amongst other Environmental Levies, a screenshot of which is reproduced below:

Figure 1: Actual (2017–18) and forecast (2018–2024) consumer cost of environmental levies. Source: Office for Budget Responsibility (OBR), Economic and fiscal outlook – March 2019, see “Economic and fiscal outlook – supplementary fiscal tables: receipts and other”, Table 2.7.

Note that the Outturn column on the left is incomplete and has to be filled in by reference to Footnote 1, where we learn that the cost of the Feed-in Tariff in 2017–18 was £1.4 billion, which when added to the cost of the RO (£5.4 billion) and the CfD (£0.6 billion) gives a total of £7.4 billion. Adding the FiT the RO and the CfD projections we can calculate the forecast renewable subsidy costs for the following years as follows:

2018–19: £8.6 billion

2019–20: £9.2 billion

2020–21: £10.2 billion

2021–22: £10.8 billion

2022–23: £11.2 billion

2023–24: £11.6 billion

The current annual subsidy will be about £9 billion, and the grand total for the years 2017 to 2024 will come to nearly £70 billion.

These costs are recovered from the prices per unit of electrical energy (kWh) sold and thus the bills paid by all types of consumer, domestic, industrial, commercial and public sector. Consequently, about 30 to 40% of the total cost is recovered directly from consumer bills, because household consumption typically comprises 30% to 40% of total consumption in a year. In truth, the impact is likely to be slightly higher than the proportions suggest, firstly because industrial and commercial consumers can buy closer to the underlying wholesale price, and secondly because some intensive energy users have partial exemption from these costs, meaning that the burden is transferred to other consumers including households. It is worth noting also that VAT is charged on these subsidy costs and domestic consumers cannot recover that cost. However, for the purpose of a general estimate we can ignore these details.

In 2017 domestic consumers accounted for about 38% of GB electricity consumption, and we can assume that this is approximately correct today. Thus, the direct impact on British household electricity bills is 0.38 x £9 billion = £3.4 billion.

There are about 26.5 million households in Great Britain thus the mean annual renewables subsidy impact on a GB household electricity bill is £3.4 billion / 26.5 million = £129 per year per household.

However, this is not the end of the story. While the other 62% of the renewables subsidies are paid for in the first instance by industrial, commercial, and public sector consumers, these costs are obviously passed through to households in the costs of goods, services and general taxation. If a supermarket is compelled by policy to pay more for electricity to refrigerate milk it must recover that additional cost at the checkout. Of course, those companies with overseas customers could in theory pass on some part of that extra electricity cost to their consumers abroad, but given the intensity of international competition that is unlikely to be a strong effect.

Consequently, it is reasonable to assume that the vast bulk of these costs are recovered domestically, in Britain, meaning that we can calculate a total “cost of living” impact of the renewables subsidies by simply dividing total subsidies by number of households.

Thus, the total annual renewables subsidy impact on household cost of living is £9 billion / 26.5 million households = £340 per year per household, of which about £129 a year is recovered directly from electricity bills and the remainder, over £200 a year, from increased costs of goods and services.

Given the scale and regressive nature of these impacts it is high time that the Department of Business, Energy and Industrial Strategy (BEIS) resumed publication of its formal estimates of the total impacts of policies, of which the direct subsidies to renewables are only part, on both gas and electricity prices. These figures were last published in 2014 (Estimated Impacts) and discontinued, many of us suspect, because they were so embarrassing. At that time the department calculated that in their central scenario for 2020 domestic household electricity prices (NB, prices per unit, not bills) would be some 37% higher than they would have been in the absence of policies, and that prices for a medium sized business would be some 62% higher. Future projections out to 2030 were equally disconcerting, and it is thus imperative to know whether government attempts to contain the costs of energy and climate policies are having any significant effect. Judging from the OBR forecasts the answer is clearly no. The public needs and has a right to see the details.

Dr John Constable: GWPF Energy Editor.

https://www.thegwpf.com/current-costs-of-british-renewables-subsidies-per-household/

 

In fact, John is underestimating the full cost, as currently the cost of the Capacity Market Mechanism, which pays generators to remain on standby to cover for intermittent renewables.

Currently this cost is excluded from the OBR table, as it has been challenged by the ECJ as illegal state subsidy. Whatever the outcome, we will need some form of standby mechanism.

The cost of the current mechanism would have been £1.0bn this year, so the real cost of renewable subsidies would have been £10bn this year.

29 Comments
  1. Ian Magness permalink
    October 14, 2019 12:12 pm

    So, let’s ban fracking and keep building windmills!
    You know it makes sense.

    • Pancho Plail permalink
      October 14, 2019 9:55 pm

      It does, especially on nights like tonight with windmills supplying just 20%.

  2. October 14, 2019 12:12 pm

    Reblogged this on Climate- Science.press.

  3. MrGrimNasty permalink
    October 14, 2019 12:26 pm

    That’s not even the full cost.

    If we had implemented nuclear and gone full out for fracking as the basis of energy policy back when we still had nuclear expertise.

    Nuclear and CCGT would have been considerably cheaper than the cost of nuclear/CCGT possible starting from scratch today, let alone compared to wind/solar.

    The local Argus was saying Brighton could/should go carbon neutral like Stockholm – they and the comments appear oblivious to the fact that most of their energy comes from nuclear, hydro, and burning – mainly forests and waste – including imported UK waste!

    The eco-loons don’t have a clue and they will achieve immense damage to the economy, our way of life, AND the environment if something doesn’t drastically change in the political climate – and all for no change to the weather climate.

  4. A C Osborn permalink
    October 14, 2019 2:07 pm

    Add to those costs the £18/MWh charged to both Gas & Coal as Punishment for not being renewable.
    Us Customers have to pay that as well.
    Ain’t being “Green” grand.

  5. October 14, 2019 2:11 pm

    This is what happens when you have gullible politicians who allow energy policy to be decided by environmentalists (eco-nuts) who have no knowledge of the energy system. I go back to my copy of a 2005 report by the Sustainable Development Commission into Wind Power and I can see all the lies they told (I recall spending 2 full-time weeks responding to a consultation). I can see that for 2020 they had high confidence that onshore wind would cost 1.5-2.5p/kWh and would become the cheapest source of electricity. The bigger the lie……

    I have another report the Sustainable Development Commission produced in 2007 telling us wonderful tidal power would be.

    Johnathon Porritt was in charge of the Sustainable Development Commission.

  6. John Cullen permalink
    October 14, 2019 3:04 pm

    Hello Everybody,

    Is the larger problem not renewable energy per se – although that is a very expensive example – but rather the power of unregulated lobbying in Western democracies?
    Government ministers and senior civil servants are the primary target of the lobbyists. It is clealrly very difficult for ministers and civil servants to resist this relentless onslaught.
    By contrast, ordinary citizens have no lobbying power; all they have is limited access to (and limited influence on) members of parliament.

    Thus lobbyists influence the top of the legislative tree while ordinary people, often acting individually rather than in groups, have some very limited influence on those at the bottom of the legislative tree. It is clear where the true power and real influence lies. Thus I suspect we will not see significant improvements in our democracies until lobbying is properly regulated.

    Note that I am not criticising lobbying in itself since it performs the useful function of advising government about the goods and services available; rather, I seek regulated lobbying so as to prevent governments and the civil service from being captured by ‘rent-seeking’ interests that act against the public good.

    Regards,
    John C.

    • Neil Wilkinson permalink
      October 14, 2019 3:24 pm

      Other people have also pointed out how Government supports lobbyists/activists to stimulate ‘public demand’ for the Governments intended course of action which may have proved otherwise unpopular.

  7. Stuart Brown permalink
    October 14, 2019 3:33 pm

    Constraint payments; the other cost that gets forgotten… Paying the dratted things NOT to produce electricity when there is too much of it in the wrong place.
    https://www.ref.org.uk/constraints/indextotals.php

    £107,542,826 so far this year, nearly £125 million last year. For doing nothing.

    • George Shaw permalink
      October 21, 2019 4:46 pm

      we have to do that with nuclear too, and we had to with coal to some extent, to keep the generators ticking over ready to kick in. it takes a long time to bring a coal fired power station up to full load capacity.

      • Stuart Brown permalink
        October 21, 2019 6:15 pm

        George – I don’t think nuclear and fossil power stations get any money as constraint payments at all. Viz this from the REF:
        ‘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.’
        https://www.ref.org.uk/energy-data/notes-on-wind-farm-constraint-payments

        Note the pay National Grid bit!

        Nuclear is a special case because the cost of the fuel is so low (and the requirement to pay off the capital build so high), that they underbid most other generators. It is always worth taking nuclear electricity before gas or coal, so they never get constrained off.

        In fact, if wind and solar didn’t destabilise the grid through lack of inertia, they wouldn’t need to be paid to stay out of the way either – and we wouldn’t be in the ludicrous situation of simultaneously trying to find ways to pay coal fired power stations to be alight when we have too much electricity from wind.

        Is it this you are thinking of? Balancing reserve rather than constraint payments – ie paying fossil fuel generators to make electricity we don’t need. Equally bonkers outside of having a bit in hand to cater for kettles going on during advert breaks in soap operas.

        Isn’t this just a hidden cost of wind and solar too? I wonder if there is a correlation between balancing reserve payments and wind output?

  8. Dave Ward permalink
    October 14, 2019 3:57 pm

    I’ve just had an email from E.ON Energy which says:

    “Great news. On 1 October 2019 we lowered your energy price.

    We now supply all our customers’ homes with 100% renewable electricity as standard.*

    *Electricity sourced from our renewable generation assets, supply agreements with independent UK wind generators and the purchase of renewable electricity certificates. The electricity supplied to your homes comes from the National Grid.”

    In replied with:

    “And how much more could you lower your prices if you gave up using “Renewable Energy”, and stopped trying to force Smart Meters onto your customers?”

    I added some links to this site, and also the above story at the GWPF (Paul hadn’t published this post at the time). I am not hopeful of a response, let alone an admission that they are bullshitting…

    • George Shaw permalink
      October 15, 2019 9:54 pm

      Yes, dammit, all these expensive green energy deals. Why can’t we have energy deals with a throwback to the fifties where the energy is guaranteed to be from lovely smokey coal, dug up by miners with emphysema lung disease, in an era of pea soup smog, and Britain still had an empire!!

      • October 15, 2019 10:19 pm

        Have you not heard of natural gas?

      • George Shaw permalink
        October 15, 2019 11:27 pm

        oh dear, have you not heard of dramatic exaggeration?

  9. Michael Adams permalink
    October 14, 2019 5:13 pm

    You also have to add the cost of decommissioning which will probably be born by the taxpayer, the wind farm owners having gone bust by then. I’ve never seen the decommissioning costs evaluated before.

  10. Joe Public permalink
    October 14, 2019 7:28 pm

    “In 2017 domestic consumers accounted for about 38% of GB electricity consumption, and we can assume that this is approximately correct today. Thus, the direct impact on British household electricity bills is 0.38 x £9 billion = £3.4 billion.”

    Sorry Paul, but GWPF makes the same misunderstanding as most of the MSM & other so-called ‘experts’.

    As stated above, these costs are recovered from the prices per unit of electrical energy (kWh) sold and thus the bills paid by all types of consumer, domestic, industrial, commercial and public sector.

    In addition, the industrial, commercial and public sectors also pass their electricity price increases on to their (domestic) customers in the form of increased charges for the goods and services they provide.

    The only exception being the proportion of increased costs industrial & commercial consumers manage to pass on to their foreign customers in the form of exported increased prices.

    In reality, households end up paying maybe 75% of the £9 billion, not just ~38%.

    • October 14, 2019 8:13 pm

      Yes, that is what John C is saying.

      While households only see a fraction of the real cost on their leccy bills, they still end up paying the full cost one way or another

  11. It doesn't add up... permalink
    October 15, 2019 1:37 am

    The costs identified by Dr John Constable exclude most of the consequential costs of allowing renewables onto the grid. Only capacity market payments are identified, with the very substantial investments in grid capacity to deliver power from distant wind farms and disperse solar surpluses from the SW in summer, and additional grid stabilisation spending, reduced efficiency of operation of CCGT, constraint payments etc., completely ignored. Also ignored is the economic impact of uncompetitive energy prices that leave us importing things we used to make.

    Carbon taxes also act to mask effective subsidies. By pushing up market prices for unsubsidised power, they raise the price obtained for renewables funded by Renewables Obligations, which get market price plus their RO entitlement. The real subsidy inherent in a CFD is also hidden by the higher market price.

  12. October 15, 2019 2:49 am

    Reblogged this on Climate Collections.

  13. October 15, 2019 6:11 am

    Reblogged this on ajmarciniak.

  14. Washington 76 permalink
    October 15, 2019 1:59 pm

    Oct 8, 2019 Australians ‘are not silly’ and won’t buy into climate change ‘hysteria’

    NSW One Nation leader Mark Latham says the majority of Australians are “not silly” and will not be fooled by the rhetoric pushed by climate activists.

  15. Arthur Clapham permalink
    October 20, 2019 9:07 pm

    A friend whose sister who lives in the shadow of Drax power station, during the time when was coal was was burnt she had no problems with soot or smuts on her washing line, nowt since wood pellets are burnt these days she has to use a canopy to protect her washing from soot and smuts.

    • October 20, 2019 9:38 pm

      Funnily enough, I was cycling around both West Burton and Cottam coal power stations last Thursday. I gather Cottam closed last month, and West Burton’s coal is only intermittent these days. (It also has a CCGT plant attached which seemed to be working last week)

      Yet at neither site did I see any soot or signs of pollution. Cottam is actually quite a small rural village.

    • George Shaw permalink
      October 21, 2019 4:43 pm

      modern pollution is more pernicious than older pollution because the particulates are much finer. You can’t always see a plume of black sooty smoke to warn you of the dangers.

      For example, the PM2.5 particulates that diesel engines emit are sufficiently fine to get right into the bloodstream.

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