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Wind farms earn hundreds of millions more from energy crisis after delaying Government subsidy contract

May 2, 2022

By Paul Homewood

 

h/t it doesn’t add up

 

Don’t say you weren’t warned!

 

 

  image

 

According to a new analysis, the taxpayer could be half-a-billion pounds worse off due to a recently revealed delay at just one wind farm

The Government has urged developers to “act fairly” after some of the UK largest wind farms delayed taking up "green" Government contracts, potentially allowing them to earn hundreds of millions of pounds more from consumers during the energy crisis.

According to a new analysis, the taxpayer could be half-a-billion pounds worse off due to a recently revealed delay at just one wind farm, which generous "green" Government contracts allowed for.

Leading Tory MPs told GB News the revelations showed the Government’s energy strategy was "in tatters".

No new wind farms have begun selling electricity to the grid at “low cost” subsidy deal prices, agreed with the Government, at expected dates since the energy crisis began—instead selling at higher market prices, GB News can reveal.

The Government has called on developers to 'act fairly.'

The government guaranteed the income of all new offshore wind farm developments with so-called Contracts for Difference (CfD), part of a wider push to encourage investment in Net Zero.

The contracts mean consumers pay windfarms a subsidy if market prices are low, and wind farms pay money back if they are high.

Since the start of the energy price crisis, several newly completed wind farms have delayed taking up their CfDs, pushing them back by a year from dates listed on the database of the Low Carbon Contracts Company, which manages subsidy deals for the government.

There is no suggestion that the developers are doing anything wrong. CfD contracts allow delays of up to three years and are generally flexible and generous to developers.

But critics of government policy told GB News CfDs mean the bulk of financial risk is put on consumers, not investors. And by allowing for delays, the government has allowed developers to earn massive extra profits as consumers struggle to pay bills.

In fact, since energy prices soared last autumn, no new renewables capacity has been added to the CfD scheme. Every renewable generator that had been expected to start selling at a CfD price 2022 has now been delayed until 2023, and they could push the date back even more.

This means power is being sold to consumers more expensively than expected despite the government giving assurances that wind farms backed by CfDs are cheap and bring prices down.

A Government spokesperson at the Department for Business, Energy & Industrial Strategy (BEIS) told GB News:

“The CfD scheme has been hugely successful in boosting UK energy supply and reducing our dependence on volatile fossil fuels, while also cutting costs for consumers, reducing the price of offshore wind by around 65% since 2015.

A Government spokesperson praised the CfD scheme to GB News.

“Projects will not receive CfD payments while they are generating on market terms. We urge companies to act fairly on this matter, recognising the public support they have received for development.”

Steve Baker MP, the Conservative MP for Wycombe, told GB News that the fact BEIS has resorted to pleading with wind farms in their statement to GB News showed the system of wind farm regulation was failing.

The former chair of the European Research Group said: "Pleading for fair play is an admission of massive regulatory failure.

"We urgently need sensible energy policy based on free market prices, profit and loss, not the present failing tangle of state intervention. Public welfare depends upon it."

Craig Mackinlay, the MP for South Thanet, and chair of the Net Zero Scrutiny Group, told GB News: "The false promise of cheap renewable energy is in tatters with ineptly agreed heads they win, tails we lose contracts littering UK energy strategy.

"If energy prices are low, CfDs mean consumers pay out to artificially increase energy prices; when energy prices are high these companies hold back to permanently fix high prices for themselves.

"It’s a shameful racket that households are paying for all in the name of the Net Zero con-trick."

In the case of Moray East, the largest operational offshore wind farm in Scotland, consumers will be around half a billion pounds worse off over 12 months because of a recently revealed 12-month delay to taking up a CfD, if market prices stay as they are now.

Craig Mackinlay MP says cheap renewable energy is a 'false promise.'

GB News has contacted the developers and wind farm, which is 57% owned by Spanish firm EDP Renováveis, multiple times to request an explanation for the delay. We have not received a reply.

Enrique Alvarez, Project Director for Moray East, told the Offshore Engineer website just weeks ago, on April 7th: "I am delighted to announce that Moray East has now achieved its full contracted output of 900 MW."

Their website reads: "Moray East is a highly competitive offshore wind project which was granted consent (1,116MW) in 2014 by the Scottish Government.

“In 2017 it won a 950 MW contract for difference at competitive auction which set the price of power generated at £57.50 per MWhr, and will be delivered early in the next decade.”

They will be selling power to consumers for much more than £57.50 per MWhr this year.

Andrew Montford told GB News 'the Government has a chicken and egg problem.'

Net Zero Watch’s Andrew Montford told GB News: “The Government has a chicken and egg problem.

“They say that low-bidding CfD wind farms will lower consumer prices, but no wind farm will take up its CfD with market prices so high. The Government’s energy strategy is in tatters”.

Yesterday, it was reported that Kwasi Kwarteng, the Secretary of State for BEIS, was seeking to pressure North Sea Oil producers, who have been criticised for cashing in during the energy crisis, to invest their bumper profits.

Labour, meanwhile, is calling for a windfall tax on oil firms that have done well during the energy crisis. Mr Kwarteng and the Prime Minister are opposed to a windfall tax.

Wind farm developers have not faced the same level of scrutiny for their extra profits—until now.

Moray East supplied 1.4 million MWh to the grid from June 2021 to March 2022, and production has increased since, hitting full capacity. To reach the half-a-billion-pound extra income estimation, the following projections and estimations were made.

It is estimated the farm will generate 4.1 million MWh over the coming year, assuming the 950 MW capacity plant supplies a 50% load factor. If it sells this power at an average of £200.00 per MWh, they will receive £832 million from the grid in 12 months.

Market prices have been over £300 on given days in recent weeks and monthly averages varied between £161 MWh and £250 MWh in the first three months of this year.

If the plants had taken up their CfD when expected, selling at £73.71 per MWh, they would have received £306 million over the year; more than £525 million less than they could rake in this year selling at booming market prices.

The variables are huge, of course, and the half-a-billion figure is just one of many possible estimations. But it clearly demonstrates the potential for the consumer to pay out vastly larger sums when developers delay taking up CfDs.

https://www.gbnews.uk/news/wind-farms-earn-hundreds-of-millions-more-from-energy-crisis-after-delaying-government-subsidy-contract/285252

 

Andrew Montford and the GWPF have been warning us about this possibility for some time. According to published Annual Accounts, the cost of building offshore wind farms is not compatible with the low prices set at CfD auctions.

The suspicion has long been that developers would simply renege on the contracts as soon as market prices rose, something which was inevitable given government policy on carbon pricing.

The wind farms who have already taken up their contracts are, of course, sitting pretty, earning around £150/MWh. It is the ones just coming on stream, who have much lower contract prices, which will opt out of their CfDs.

It all makes a total nonsense of government and Committee on Climate Change projections of a low-cost renewable future.

46 Comments
  1. Mack permalink
    May 2, 2022 5:52 pm

    ‘Committee on Climate Change projections of a low cost renewable future’.

    Possibly the finest example of an oxymoron to be found in the English language.

    • Thomas Carr permalink
      May 2, 2022 6:53 pm

      Neat.

      Now all we need is someone with immense patience and intellectual stamina to gross up the figures for the government subsidies in all their forms since the first generator went live. Then to sum the difference between installed solar PV capacity and output. Then to sum the difference between the installed capacity of the wind farms and the power delivered.

      An exhausting task but even the Bank of England might be impressed by the size of the burden on the UK economy which has to be off-set against the GDP for the same period.

      Paul and others have shown us the charts. All we need is an indefatigable collator and and indexer of sources. The study could be for the most recent 10 years that complete statistics are available to make it easier.

      • Ben Vorlich permalink
        May 2, 2022 7:57 pm

        You could do worse than start with The Renewable Energy Foundation whose website says:-

        The Renewable Energy Foundation is a registered charity promoting sustainable development for the benefit of the public by means of energy conservation and the use of renewable energy.

        There’s a lot of detailed data here

        https://www.ref.org.uk/energy-data
        and
        https://www.ref.org.uk/generators/index.php

        The site has lots of filtering, sorting and gives hours of fun

    • Harry Passfield permalink
      May 2, 2022 7:10 pm

      No. Call it what it is and shame the devil: it’s a lie! An out and out self-serving lie designed to make richer people in this country even richer. (Are you reading this Deben, my Lord?)

    • Phoenix44 permalink
      May 3, 2022 9:43 am

      The CCC simply believed CfD bids as it suited their agenda. It allowed them to tout “lower costs” but it was a deliberate deception by the bidders.

  2. Martin Brumby permalink
    May 2, 2022 6:18 pm

    We all know about Dave Boy Cameron and Daddy in Law, for many years, trousering £1,000 a day for allowing a little wind farm on his land. No doubt much more, now.

    Am I being unduly suspicious in wondering how much Boris, Kwasi, Goldsmith, Deben, Kneel Starmer, Veggie Benn and all the rest have tucked away in their (or family) portfolios?

    • catweazle666 permalink
      May 2, 2022 7:03 pm

      Vermin.

  3. GeoffB permalink
    May 2, 2022 6:42 pm

    Wow, GWPF saw this coming ages ago,,,,wind farms cheaper….my ar-se, CFD is a licence to print money.

    • Julian Flood permalink
      May 2, 2022 9:21 pm

      Well, the idea was nicked from the City so what did we expect?

      JF

      • Phoenix44 permalink
        May 3, 2022 9:04 am

        What does that mean? Nobody in the City signs a one-sided contract as the government has. Hedging with a cap and collar is a very successful, hugely valuable means for businesses to offload risk on to those more able to absorb it. That civil servants left huge loopholes is their problem, not “the City”.

      • catweazle666 permalink
        May 3, 2022 3:42 pm

        I’m pretty sure there are no businesses in the City that are that stupid, the Snivel Serpents dreamed the whole crackpot scheme up themselves with a certain amount of help from their friends in the “Unreliables” business.
        Of course, as with any financial arrangement between such participants there seems be a stench of brown envelopes hanging around too…

  4. May 2, 2022 6:47 pm

    “According to a new analysis, the taxpayer could be half-a-billion pounds worse off due to a recently revealed delay at just one wind farm”

    GB News is wrong.

    It’s not taxpayers, but electricity consumers, who foot the subsidy bills.

    • Vernon E permalink
      May 3, 2022 11:41 am

      JP: Rather splitting hairs aren’t you? I think its fantastic that GB News has picked up on this and they could be a great ally for Paul et al.

    • It doesn't add up... permalink
      May 3, 2022 4:12 pm

      There is no subsidy beyond indirect effects from carbon taxes etc. But perhaps there should be a windfall tax on wind generators not on CFDs, which would be in other taxpayer interests.

      • Steve permalink
        May 3, 2022 6:35 pm

        Is it possible to put a windfall tax on foreign owned companies?

  5. May 2, 2022 7:00 pm

    Does the BBC have a reputable Energy Analyst who could confirm (or otherwise) GBNews’s claim:

    “No new wind farms have begun selling electricity to the grid at “low cost” subsidy deal prices, agreed with the Government, at expected dates since the energy crisis began—instead selling at higher market prices, GB News can reveal.”

  6. Nicholas Lewis permalink
    May 2, 2022 7:08 pm

    Personally they should be denied access to the grid until they’ve signed up and I can’t believe the BEIS/OFGEM have been daft enough not have written that into the contract. Then like the largesse of covid nothing is beyond this govt to look after its own.

    Moray East is the biggest one so far presumably but how many more companies haven’t signed up to the LCCC?

    At least they get sod all for the last few days given how low wind production has been.

  7. Harry Passfield permalink
    May 2, 2022 7:21 pm

    Maybe a bit late for existing contracts but wouldn’t it be good if contracts actually had a clause that said that overall average output should be above a certain figure otherwise penalties come in to play.
    Yeah….

    • Andrew Harding permalink
      May 2, 2022 9:16 pm

      Definitely!

      But it won’t happen, however much evidence is made available that Wind & Solar are intermittent, unpredictable and totally unsuitable for a 21st Century country’s economy.

      Their viability will never be questioned, this is the new heresy! Witches, ghosts & ghouls were once feared and never talked about in public or private! The same with questioning AGW, this is despite the fact that it is not consistent with any of the Laws of Thermodynamics?

      Non-Political Correctness, is the current bogeyman, AGW is not open to debate “the science is settled” is probably the most irrational, unscientific, utterance ever made? However, its constant repetition, combined with the scientific ignorance of ordinary people, has made it a ‘fact’, that threatens all life on Earth!

      The only positive that can come from this dilemma, is this?

      Due to the current, global political situation, energy costs are set to rocket. Food prices will also increase as will lack of personal choice. Will the general public, accept this? I doubt it very much, people accept restrictions for the greater good, until their family’s suffer, go cold and very hungry.

      I do not want to see the slow and painful cost of living impacts on ordinary people, unlike the political manipulators. However, I can now see a turning point, that a few years ago was impossible!

      Long may it continue!

    • It doesn't add up... permalink
      May 3, 2022 11:55 am

      I don’t think that wind farms can command the wind any more than Canute could command the tide.. However, you will find that the government makes some crazy assumptions about the likely average capacity factor that will be achieved which you can see in this excellent explanation of the crazy system for CFD allocations.

      https://ore.catapult.org.uk/blog/allocation-4-summary-aecapacity-buy-us/

      With CFD strike prices now being a mere decoration, it is likely there will be a turf war of completely unrealistic bids, which BEIS will doubtless try to spin as a success. Instrad it will mark policy out of control. I’d be hiring experts in auction game theory if I was working for a wind investor. In fact, that is exactly what BEIS should have done.

    • Sean permalink
      May 3, 2022 12:54 pm

      Having a clause in the contract that the wind or solar facility is required to deliver a minimum of [insert value here] on a continuous basis (not an averaged one, to prevent “Well, we delivered 3x our obligation a month ago; that covers us for only producing 1/10 our obligation now” arguments), with the wind or solar facility being on the hook for obtaining backfill generation if their production falls below their obligated delivery. That would shake out the people rushing to the ‘renewable’ gravy train, as they discover what the cost of covering shortfalls will be.

      • ThinkingScientist permalink
        May 3, 2022 5:17 pm

        Compelling renewables to only bid on a weekly or monthly dispatchable basis, with huge penalties for under or over supply, would solve all the problems.

        And gas, coal and nuclear could bid on the same basis.

        If you level the playing field, guess which fuels will be the winners?

  8. Neil Pryke permalink
    May 2, 2022 7:59 pm

    Corruption empowers, and absolute corruption empowers absolutely.

    • Harry Passfield permalink
      May 2, 2022 8:16 pm

      Agreed – except, I would substitute ‘enriches’ for ’empowers’.

      • Neil Pryke permalink
        May 2, 2022 8:19 pm

        I think you’re right. I hold the thought, and use it to defuse my anger and frustration.

  9. Penda100 permalink
    May 2, 2022 9:04 pm

    Perhaps the BBC will feature this on Rip Off Britain. No, I won’t hold my breath.

  10. robertliddell1 permalink
    May 2, 2022 9:37 pm

    Vomitus

  11. Mikehig permalink
    May 2, 2022 9:41 pm

    Let’s hope that, on the rare occasions when there is excess wind output for grid capacity, this project and any others doing the same are the first to be constrained off – without compensation.

    • It doesn't add up... permalink
      May 2, 2022 10:49 pm

      They will have every incentive to constrain off when prices are negative. In fact, what we see are the cheapest to constrain being constrained first. That means any wind farm not operating on a CFD or ROCs, followed by ones with lower levels of ROCs (i.e. onshore). That leaves the most costly ones still operating and collecting full subsidies: precisely the reverse of a merit order that applies in normal grids where the most costly generation is only brought on line in emergencies. Those on CFDs get subsidised for the full strike price (i.e. no extra compensation is paid for negative prices) – unless there is a continuous period of 6 hours of negative prices, in which case they get nothing: in those circumstances they curtail first, even before the onshore wind farms.

      The next round of CFDs (currently in progess) is supposed to offer no compensation for any hour of negative prices, which would leave those wind farms exposed to being first in line for curtailment. As capacity is now growing beyond minimum demand levels the amount of curtailment is set to grow quadratically. If the CFDs meant anything it would mean that they would need higher strike prices to compensate for the zero income hours of curtailment. However, it’s clear that strike prices are completely irrelevant, and they will trust to subsidy via carbon taxes and whatever schemes are dreamt up to support green hydrogen.

    • It doesn't add up... permalink
      May 3, 2022 2:13 pm

      I suspect Andrew Mountford is reading the comments…

      https://www.netzerowatch.com/money-for-nothing/

      Moray East caught getting constraint payments. In their case the constraints arise partly because of insufficient transmission capacity from Scotland, rather than wind generation exceeding demand. They are benefitting from onshore Scottish wind being subsidised by ROCs, being able to capture that cost while still being cheapest to curtail.

  12. It doesn't add up... permalink
    May 2, 2022 11:28 pm

    This is of course a lie:

    “The CfD scheme has been hugely successful in boosting UK energy supply and reducing our dependence on volatile fossil fuels, while also cutting costs for consumers, reducing the price of offshore wind by around 65% since 2015.

    Here’s what CFDs have really done for offshore wind prices:

    Nothing at all!

    • Mikehig permalink
      May 4, 2022 10:23 am

      Idau; that’s a really useful graph!
      Is that from your own analysis? If not, what’s the source?
      I’m asking because I’d like to be able to use it.
      One more question: is it based on installed capacity or actual production?
      Thanks.

      • It doesn't add up... permalink
        May 4, 2022 1:20 pm

        It is based on the data from the Low Carbon Contracts Company which details actual daily production and actual daily CFD payments per CFD contract which are calculated from hourly production data and hourly pricing data. It’s the real deal.

        You can download the underlying data from here:

        https://www.lowcarboncontracts.uk/data-portal/dataset/actual-cfd-generation-and-avoided-ghg-emissions

        I summarised the data to technology groups using pivot tables and creating a new column for month/year, then divided the cash by the generation.

      • Mikehig permalink
        May 4, 2022 10:40 pm

        Thanks for the explanation: it gives the lie to all the claims about wind being cheap.

  13. cookers52 permalink
    May 3, 2022 8:21 am

    I am sure all of this throwing our money around solves the climate emergency.

    The strange thing is if you ask politicians to throw a bit of money around to solve social problems, they say there is no money to spare.

    • Nicholas Lewis permalink
      May 3, 2022 9:41 am

      Very little financial benefit is ever likely to accrue to their mates in that environment

  14. Phoenix44 permalink
    May 3, 2022 9:41 am

    I’m sure virtually all the bidders assumed market prices would be higher than their CfD bids because there was no reason they could not be. If you model generation, as they all will have done, you come up with market prices well shove CfD bids no matter what. That civil servants thought the CfD bids were future electricity generation costs shows the naive stupidity combined with their need to show politicians renewables are affordable.

    • Nicholas Lewis permalink
      May 3, 2022 9:44 am

      Theoretically if you’ve signed up to a CfD you only get the strike price as adjusted by inflation so civil servants got that element right. What they didn’t protect against was you were only allowed to be connected once you signed upto the LCCC otherwise it was a stranded asset.

    • It doesn't add up... permalink
      May 3, 2022 11:22 am

      The interesting case is Triton Knoll, which is divided into three sub units. Its CFDs are currently worth £94.81/MWh. The first two sections came on stream and commenced their CFDs in spring and summer (July) ,as year, just before prices went ballistic. The final third continues to get market prices and no CFD.

      I also noted that Orsted were whingeing in their Q1 results that they made losses on their hedges for Hornsea 2, which was later ramping up to capacity than they had anticipated, so they had sold more output forward than they could deliver, and had to buy back the contracts at a loss. This is the windfarm that they recently sold a 50% interest in for £3bn. Both these indicate that the CFD is a mere decoration to be ignored. The CFD is worth £73.71/MWh, which is the same value as Moray East (£57.50/MWh in 2012 money).

  15. 2hmp permalink
    May 3, 2022 12:00 pm

    GBNEWS is beginning to make quite a mark with honest reporting.

    • It doesn't add up... permalink
      May 3, 2022 12:11 pm

      I doubt this story will be reported by the BBC. Harrabin will Bury it, because it completely undermines the false claims he has been making year after year.

  16. It doesn't add up... permalink
    May 3, 2022 12:13 pm

    Some good news for UK consumers. Our limited gas export capability is giving us much lower gas and electricity prices than on the Continent. Long may it continue.

    https://timera-energy.com/prices-across-europes-gas-hubs-diverge/

  17. Penda100 permalink
    May 3, 2022 2:32 pm

    Starmer on the BBC asking for a windfall tax on BP profits. No mention of a windfall tax on the windmill scammers.

    • Nicholas Lewis permalink
      May 3, 2022 5:26 pm

      LBC talking about it about it as well shame Paul couldn’t call in and explain this situation to them.

      OFGEM better have got ahead of this before AR4 is continued.

      • Micky R permalink
        May 4, 2022 12:01 pm

        LBC has a “catch-up” feature, what time was it on?

  18. Micky R permalink
    May 4, 2022 12:05 pm

    ” The Government has urged developers to “act fairly” ”

    Is that how HMG manages contracts, contractors and suppliers? Urging them to act fairly !! On large scale projects, all contractors and all suppliers should be treated as sharks. Although that might be an insult to sharks.

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