Another “cheap” windfarm turning out expensive
By Paul Homewood
Even though we now know that offshore windfarms are refusing to activate the agreements they have made to sell power to the grid at very low prices, preferring to sell power at the sky-high prices available in the free market, and even though windfarm financial accounts make it patently obvious that they can never be profitable at the agreed prices, most commentators still insist that offshore wind is cheap and that low-priced electricity is just around the corner. Their refusal to admit that offshore windfarms costs are not coming down is depressing, and a fairly obvious indication that their motivations are religious rather than rational. Still, those of us who do care about facts soldier on. What else can we do?
This post outlines new evidence that windfarms coming on stream in 2025 are going to be just as costly as recent ones. The evidence comes in the shape of the latest financial accounts (to March 2022) of Dogger Bank A. This is a 1.2-GW giant, situated almost 100 miles out in the North Sea, although in comparatively shallow waters. The cost of the project, announced by the developers is £3bn, or £2.8m/MW, which is a bit cheaper than recent offshore units, but not much. However, most windfarms run well over budget, on average by 17%, so there is no cause for excitement.
The 2022 accounts give us an opportunity to assess the project spend to date. We can develop a very rough expectation of the state of completion of the project from information published on the windfarm’s website. The notices to mariners published each week by the windfarms are also useful. The notice just before the financial year end is here. In a way, it’s rather uninformative, because it shows that the offshore works were then at a very early state of completion. In fact, this was only the second notice to mariners issued. It indicates that offshore survey work has begun, but that’s about it. In fact, the most recent notice indicates that nine months on, only 16 of 100 foundations have been installed. The onshore works are rather further on. For example, we can see that the cabling works started in 2020, and are expected to be completed in 2022. The operations base would have been well on at the 2022 financial year end too. The first onshore transformer was not delivered until after the year end though.
So how much might such a windfarm have been expected to have spent by the start of construction operations? We can develop an expectation from the breakdown of a typical windfarm cost published here. Simply scaling up the £2.3bn spend to the £3bn announced for for Dogger Bank A and then applying an estimated state of completion to each element of the cost produces an expected spend of £360m, which gives £2.6bn headroom against budget. You can quibble about the percentages I’ve used, but it will be difficult to come up with a figure much higher, simply because the offshore works had barely begun at the balance sheet date. The big spend – on the turbines and their foundations – is still to come. (Note that the difference can’t be accounted for by prepaid assets. These would be disclosed in the accounts as prepayments rather than as fixed assets.)
Unfortunately, the actual spend to date, according to the published accounts, is £1.4bn. In other words, they have spent nearly half of the announced cost before starting offshore works! We can therefore safely say that this is not a £3billion windfarm. It will cost at least £4 billion, and probably more.
Of course, 100 miles out in the North Sea, there is rather more wind than there is closer to shore, so it’s possible that the load factor would be rather good. BEIS seems to think that Dogger Bank will achieve a remarkable 58%. If that was the case, then the overall cost of the project might be around the £120/MWh mark, which is a bit lower than the £140/MWh that is the norm. However, if you look at the trend of load factors of UK offshore windfarms, such a value appears implausible. The yellow trend in the figure below (taken from my report on offshore wind costs) shows how load factors have increased as turbine size has gone up (although some of the effect is due to moving further offshore). Note, however, that these are the figures for the early years of a windfarm’s existence; they decline with age.
With all this in mind, we might expect Dogger Bank A (with 13-MW turbines) to start out at a load factor of around 50% and decline from there. That being the case, the overall costs will be around the £140/MWh mark. Just where offshore costs have been for the last ten years.
For the record, Dogger Bank A has a current strike price of £51.06/MWh
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NOT A LOT OF PEOPLE KNOW THAT 
Paul, you have revealed the uncomfortable truth. What is needed is for those who disagree to say precisely where they think your figures are wrong. It is amazing that the government did not make an agreement with the wind farm companies that held them to supply at the figure that was set out as the strike price. It is a farce!
You’ve got to give the windfarm developers credit, they knew how to game the system from the start. They offered a low CFD price which politicians and their green supporters waved in front of the press and an eager public saying this is the cheapest way to generate electricity. Then they did all in their power to restrict fossil fuel generation and extraction so that there would be shortages. They then choose not to activate their CFD pricing and get the price for the most expensive electricity sold in the market. If ever there was a case for market manipulation (with politicians being used to sell the scheme) this is it.
Indeed Sean. Old school cops would call similar operators on their patches as gangsters!
The politicians (at least those with some intelligence and close to the decision making) were very likely in on it. Alan B’stards the lot of them.
My bet is they were told to offer low CfDs with the promise that prices would be revisited as and when necessary. Investors respond to incentives. In the enemy market, the government structures the incentives. Blaming anybody but government is silly.
Somehow the wind energy proponents are managing to pull the wool over everyone’s eyes about the costs and returns but they can’t answer to the consumer energy bills that are increasing in proportion to wind turbine installations. The MSM, developers, and investors can lie about most everything but the consumer price increases.
” available in the free market ”
The energy market in the UK and Europe is not a free market, it’s stilted by subsidies, restrictions on funding for capital works involving coal-fired power stations, incompetent procurement management, pressure from the believers, and more.
The starting point for recovery from the current shambles is a legitimate, pragmatic, competent buyer’s cartel operating in response to a declared energy emergency.
Is there any allowance here for the periods when the wind does not blow and power is needed? Normal power stations are penalised if they fail to deliver to MW against demand as contracted: windfarms seem to reverse this tradition and are paid if they could generate even if the power is not wanted, while not paying for the failure to supply.
I had been assuming that the CF that is quoted for offshore wind was 40% +/- 10% due to windspeed variation. If that were the case how would larger turbines get higher capacity factors? Are they now locating them in places which have almost permanent high winds or just selling dishonestly (as with the cost of windpower)?
Larger turbines access wind at higher altitude. Wind speed typically increases with height above the surface.
If you look here
https://www.ref.org.uk/generators/search.php?TechGroup=WD&start=0&dir=desc&order=12
you will see that the apparently best performing wind farms are very small and located mainly in Northern Ireland. That is the result of another Cash for Ash type scandal, where small capacity turbines were granted larger Feed in Tariffs or more ROCs per MWh. The subsidy was such that it made sense to install larger bladed models with smaller generators, designed to operate in the slightest of winds, but incapable of generating more than a small amount in higher winds. Since capacity is defined by the size of the generator, and not the energy passing through the larger swept area, it is really a false prospectus – they are really very inefficient (except as subsidy harvesters).
The highest capacity factor on a proper wind farm is the Hywind floating offshore wind farm. This also has a very lavish subsidy of 3.5ROCs/MWh, currently worth over £200/MWh on top of market prices. It has managed to find a particularly good site, but it has extra costs for being a floating wind farm. There is no clear correlation between turbine size and performance in recent years, although the modern turbines tend to perform better than early ones. Some newer farms seem to be rather disappointing.
Larger size has been about lowering cost per MW. You need fewer bigger turbines, which means fewer piling operations for their support towers, and there are other economies of scale. However, we may be nearing the point at which further increases in size do not pay off: there is a big difference in wind speed and energy between the top of the rotor and the bottom, and that imposes stresses that result in bearing wear and snapped blades etc. These factors are already severely limiting for tidal stream turbines, which is why the designs tend to be rather small. Also, big turbines require bigger cranes to install them: that too is becoming a limiting factor.
One of the best sites for explaining the many factors that are involved with wind farms is this one:
http://drømstørre.dk/wp-content/wind/miller/windpower%20web/en/tour/econ/index.htm
It is out of date in that it refers to how things were over 20 years ago, but the underlying engineering tradeoffs and the physics are very well explained.
Thanks for another great link, I didn’t know that REF published such damning stuff! The LFs are a lot higher than I’d previously thought possible, but I only ever skim the surface of wind-power.
It seems that we need another metric for non-availability. Generators used to be heavily penalised if they had contracted to supply but could not do so when requested, this seems to have gone for wind and solar as they cannot guarantee any MW availability more than a few hours in advance
We all need to get our heads round “The Settled Science™” and Government “Experts™”.
Virtually no-one in the Commons has the amount of Scientific knowledge needed for an “E” at GCSE.
The number caring about that fact, may well be in single figures, out of 650 MPs.
The Government is absolutely adept at picking their “Experts™” from the ranks of those who are sufficiently “Activist” and who are delighted to tell bare faced lies, with a straight face, in order to move the Government’s agenda forward. If they go “off message”, their advice (and employment) is terminated.
Good example, David MacKay, Chief Scientific Advisor to the UK Department of Energy and Climate Change, Regius Professor of Engineering in the Department of Engineering at the University of Cambridge. He had strange ideas (Electric Cars, “Carbon” Capture and Storage), but was honest enough to state that the “Idea of renewables powering UK is an ‘appalling delusion'”. He didn’t last long, after that.
Then there was Dieter Helm, Professor of Energy Policy at the University of Oxford, and Fellow in Economics at New College, Oxford, who was commissioned by BEIS to prepare “Cost of energy: independent review” in 2017. Again wasn’t a naughty sceptic, but strongly criticised efforts to reduce greenhouse gas emissions through current regulation and government intervention, and the deployment of renewable energy, particularly wind power.
Needless to say, the review went down like a cup of cold sick and seems to have been dropped down the back of a filing cabinet in Whitehall.
Cost Benefit Analysis? Don’t be daft!
“Don’t Confuse me with Facts! I’ve Made up my Mind!”
I am still puzzled about all this.
The suppliers quote a strike price, and that is the price they will get.
So if that is below cost, they will go bust.
Latest auction strike prices are only about £37/MWh. Apparently they can sell power at that price and still make a profit, despite what GWPF say about their analysis of company accounts.
No-one is explaining what is going on.
What is going on is that none of the low strike price CFDs are actually in operation, although there are wind farms that are producing electricity and selling it for market price instead of asking the LCCC to operate the CFD.
In fact, there is another phenomenon with Drax and Lynemouth, which both have CFDs that they have been operating for some years for trains of biomass based generation. Being baseload, their CFDs are assessed against a constant price six months at a time. The price was set at about £405/MWh for the winter, which leaves them paying a tax on every MWh the units generate of about £280. The result has been that they have simply shut down those units, adding to the supply shortage we face. The underlying CFD would be loss making in the current market, because it doesn’t pay for the current cost of wood chips.
That’s right. They simply maximise output from their older ROC units
They aren’t selling at the strike price but at market price (much higher because of shortage of reliable electricity). They haven’t activated their ‘strike price’ and may have never intended to do so.
The average cost for offshore wind is around £100 -120 per MWh. Selling at £37 would send them bankrupt very quickly. Selling at £200 per MWh is their choice.
Correction, the average price for offshore wind is ALLEGEDLY £100-£120/MWh. We do not know how reliable the GWPF cost analysis is. Has anyone else done an analysis?
For average prices see this chart, all sourced from official data from BEIS, OFGEM and LCCC.
These £37/MWh wind farms have not even been built yet. And they have no obligation to take up these contracts when they do
Very well, so the explanation of the below-cost bid prices is because they believe there will always be a shortage of electricity in the future. As a result the market price will always be way above the strike price. Isn’t this a bit of a gamble?
It is no gamble at all. The carbon price guarantees a handsome premium over the cost of fossil fuel. It is really just another subsidy for renewables. Government intentions to keep on increasing carbon prices are quite clear and laid out in policy documents.
But they won’t go bust. They will renegotiate the price. The UK needs renewables to meet its legal requirements and its supposed moral commitments. It won’t let built wind farms go bust. And aside from the fact they are renewables, it would be mad to do so anyway – make investors take a haircut and negotiate a sensible price.
What particularly annoys me is the use of unindexed 2012 prices for CFDs on projects that haven’t even secured a financial close as supposedly the current cost of wind.
It is a relatively simple matter to download the data from the Low Carbon Contracts Company on the CFDs in payment and analyse it to discover that offshore wind is being paid an average of £165/MWh where it is actually operating its CFD. The ROC subsidy for offshore wind is now worth around £110/MWh on average (but over £200/MWh for Hywind floating wind farm), while onshore is close to £60/MWh, all on top of market prices. Market prices have been very volatile this year, but have averaged close to £200/MWh for wind. Wind farms on ROCs are making out like bandits, getting way more than gas generators for their power. Understand th real revenues (and add in constraint payments too), and our bills aren’t quite so hard to understand.
And 2012 prices are compared with 2022 gas prices – when we now have high inflation.
Take away the subsidies in every shape and form and none of the investors will be interested in this ‘cheap’ electricity?
Which is what they are finding out in Germany where some of the windmills have come to the end of their subsidy period and probably need some repair work as well after 20 years.
Unless you click on the link it is not clear in the post that it is not Paul’s article but was written by Andrew Montford of Net Zero Watch
As I’ve said elsewhere, wind farms should be able to point to the areas where costs have fallen significantly. But they can’t. There’s no significant innovation and most inputs – energy, raw materials, labour – have gone up in cost, not down. Rather than repeat outdated assertions, our politicians and Ofgem should be demanding actual detail and evidence about these prices.
Yes but they point out that all new technologies reduce in price over time. In real terms. Look how cheap a TV or a microwave is now compared to their early days.
Windmills have been around since the 4th or 5th century and so is hardly new technology especially as the fundamental flaw is still the same. No wind – no rotation.
Yes but those are consumer products produced in their millions. And they are cheaper because of the shift in manufacturing such things and their components to developing countries with much lower costs.
https://www.reuters.com/business/energy/octopus-energy-shell-sign-dogger-bank-offshore-wind-power-deal-2022-12-15/
Pricing has not been revealed for this deal, or for Shell’s original deal to buy 20% of the windfarm output. They would not have sold to Octopus without a guaranteed profit. If I had to guess both deals will be tied to the Intermittent Market Reterence Price, which is essentially the Day Ahead market.
Strange, looking at Gridwatch statistics for year ending October 2022, based on 5 min monitoring periods, the average wind contribution to demand was 21.6%! I think there needs to be an official published percentage contribution from Wind power so the public can see how inefficient it is – remember wind requires almost 100% backup, and only GAS can provide this, Nuclear is base base load!