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Payments for windfarms to "switch off" soar to quarter billion pounds

January 9, 2023

By Paul Homewood

 

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Just two windfarms account for nearly half of £227 million cost
London, 9 January: New analysis from Net Zero Watch has revealed that the cost of paying windfarms to "switch off" has soared, from £143 million in 2021 to £227 million in 2022, an increase of £84 million, or 60%.
Much of the increase has been driven by the commissioning of two Scottish offshore windfarms. Moray East and Beatrice, both situated in the Moray Firth, are now receiving £100 million per year between them.

The news has generated suspicions that both are taking advantage of a loophole in the system that allows generators to be paid twice for the same electricity, with consumers footing the bill.
Net Zero Watch’s deputy director, Andrew Montford explained:
"Although constraints payments are widely understood as a payment to switch off, in fact the rules only require generators to keep the power away from the transmission grid. If they can divert it elsewhere, for example to a battery, they can receive the constraint payment and still sell the power."
However, the findings are also symptomatic of deeper problems with the governance of the electricity system and the way renewables have been rolled out before the grid was ready to take them. 
Energy economist Professor Gordon Hughes said:
"It was very foolish of National Grid to agree to grid connections for new generators in the north of Scotland before upgrading the capacity of the North-South transmission lines."
Last year, it was revealed that Moray East had exploited another loophole in the electricity system rules to delay activation of its agreement to sell low-priced power to the grid. As a result, it has been able to boost its income by hundreds of millions of pounds, again at the expense of consumers.
Net Zero Watch’s director, Dr Benny Peiser, said:
"Whether through utter incompetence, or shameful cynicism, the Government, National Grid and Ofgem have put in place an electricity system that allows renewables operators to rip off the consumer left, right and centre. They seem to hold UK households and businesses in contempt."
Further details:
* Moray East only became fully operational in 2022, so its 2023 constraint income is likely to be higher still.
* Net Zero Watch revealed the existence of
the constraint payment loophole last year. The issue has been brought to the attention of Ofgem.
* There is no suggestion that either windfarm is doing anything illegal.

28 Comments
  1. January 9, 2023 11:17 am

    O
    I suppose ripping off the taxpayers and your customers is not actually illegal under current legislation.
    It is morally repugnant and should be
    Especially when the bastards are sitting on the moral high ground, ” it’s to save the leetle cheeldren”

  2. Harry Passfield permalink
    January 9, 2023 11:46 am

    This isn’t ‘utter incompetence’ or ‘shameful cynicism’: let’s call a spade a bloody shovel: corruption!

  3. January 9, 2023 11:50 am

    Another treat for the Connoisseurs of Schadenfreude.

    Maybe this is a cunning scheme to make Xi Jinping and Vladimir Putin die of laughing. But I fear that it won’t work.

    And, it goes without saying, NOBODY will be held to account.

  4. Harry Passfield permalink
    January 9, 2023 11:50 am

    So, pretty soon, windfarms will be built with primary connection to battery-farms so that they can get double-bubble. O tempora, o mores!

    • Adam Gallon permalink
      January 10, 2023 7:20 am

      More likely to “Green” hydrogen plants.

  5. heriotjohn permalink
    January 9, 2023 11:56 am

    Net Zero Watch needs to be a bit more explicit. Payments in 2021 were sharply down on the previous year 2020, which had the record payment of £274 mn and therefore a payment per MW of £74. The rate for 2022 is “only” £58 per MW. In other words 2021 also illustrated clearly that output was severely curtailed by poor wind speeds. I think that point also needs making as further confirmation the whole system is totally unreliable in terms of output, as well as being insanely expensive.
    The total paid out in constraint payments now stands at £1.29bn since 2013. How any politician can justify such figures …. but then they never get put on the spot…

    • Taodas permalink
      January 10, 2023 9:47 am

      Can someone explain this to AEP in the Telegraph please

  6. GeoffB permalink
    January 9, 2023 11:57 am

    The issue has been brought to the attention of Ofgem…….That should ensure that SFA happens.

    • Tones permalink
      January 9, 2023 1:57 pm

      Shouldn’t this be chased up?

  7. Nigel Sherratt permalink
    January 9, 2023 12:49 pm

    Project Fortress our new local 350MW solar subsidy farm has a 700MW BESS to game the system by selling electricity at peak prices to deal with the very instability it causes. To add insult to injury the BESS can be charged from the grid as well as the solar panels.

    https://www.favershameye.co.uk/post/project-fortress-previously-known-as-cleve-hill

  8. MrGrimNasty permalink
    January 9, 2023 12:52 pm

    BBC celebrates record wind electricity in 2022.
    https://www.bbc.co.uk/news/science-environment-64179918
    Of course the more wind farms that come online the greater proportion of electricity they produce. Yet countrywide the whole lot can drop to nothing, the peak generation gets more extreme, and the 100% backup infrastructure that can never be dispensed with gets more and more expensive per unit supplied.

  9. Devoncamel permalink
    January 9, 2023 1:09 pm

    Only the filthy rich oil companies incur the wrath of the green zealots. Windfall taxes for wind farms are surely more justifiable because they are protected from the market. As a customer I’d like my money back please.

  10. John West permalink
    January 9, 2023 1:21 pm

    I have forwarded this to my MP, but I suspect SFA will happen !

    • January 9, 2023 1:32 pm

      I can 99.9% guarantee you SFA will happen. Especially if your local M.P is someone like David Cameron – whose father in law invested heavily in windmill farms (knowing what a future gold mine they would be).

  11. Stephen H permalink
    January 9, 2023 1:23 pm

    Surely the real problem in this instance is the lack of even handedness in the contracts. If it’s fair that they receive constraint payments in these circumstances, then similarly why shouldn’t they have to compensate the Grid in periods (such as the December cold spell) when they are unable to generate electricity?

  12. January 9, 2023 1:30 pm

    As soon as I learned David Cameron’s father-in-law (many years ago) had invested heavily in windmill farms my heart sank. Oh, I thought – that can only mean two things: One – it’s here to stay. Two – it’s going to cost the country a shed load of tax-payer’s money for very little gain to the tax payer. It would appear I was correct.

  13. January 9, 2023 1:55 pm

    Wasn’t there a report saying constraint payments cost the National Grid less than building new transmission lines over long distances? With present rules building a wind ‘farm’ in a remote location, or anywhere with limited spare transmission capacity, is a no-brainer in terms of profits.

    Search ‘perverse incentive’ here:
    https://www.power-technology.com/features/constraint-payments-rewarding-wind-farms-for-switching-off/

    • It doesn't add up... permalink
      January 9, 2023 7:00 pm

      National Grid is busy arguing for Locational Marginal Pricing, which would mean local prices would reflect local shortages and surpluses and provide huge margins for alleviating grid constraints, making their business highly profitable. They pay nothing towards the costs of the Balancing Mechanism, which is all recharged to generators and suppliers in proportion to the size of their imbalances. They get their income from their investments in interconnectors and from charges for use of the transmission network, so it is in their interest to maximise those. More grid assets equals a bigger business and income.

  14. catweazle666 permalink
    January 9, 2023 3:25 pm

    Why are the wind weasels not charged the cost of backup generation when the wind isn’t blowing?

    • January 9, 2023 3:46 pm

      They could argue that other types of generation pay no penalties when not available due to planned or unplanned outages?

    • It doesn't add up... permalink
      January 9, 2023 7:37 pm

      They are subject to Balancing Mechanism payments on any difference between Final Physical Notification at gate closure an hour ahead of a half hour settlement period and actual generation, which means that they have a strong incentive to sell on a basis that prices when their forecast output is known reasonably accurately, and probably to contract to sell a bit less than they are likely to generate. That is why CFD prices are benchmarked against hourly day ahead prices. Examples for a 100MW capacity wind farm on ROCs expecting to average 40MW of output over a year:

      If it sold 40MW for every half hour of the year at a fixed price ahead of time, then when it is windless then it would have to pay shortage prices on 40MW which could be very high indeed, and it would get low revenues on 60MW of its output when it is windy (although it would still get the ROCs or constraint payments).

      If it sells at a day ahead price (either in a long term contract that uses day ahead prices, or because it trades only when it has a good idea of forecast output) it can adjust the volume by trading in the market to align with forecast output, greatly reducing the exposure to shortage pricing and perhaps getting a slightly better price for larger output by .

      A wind farm on CFDs similarly reduces its exposure to under generation in the Balancing Mechanism by trading at day ahead prices to reflect its forecast output. If day ahead market prices are below strike prices it pays to under-forecast output, since all output is paid the difference anyway (leaving aside the rules for when prices go negative). If market prices are above strike prices then there can be big risks in the difference between day ahead and Balancing Mechanism prices in both directions. The extreme example is the position of the Drax biomass CFD, where its benchmark Baseload Market Reference Price is so far above the strike price the safest thing to do is to offer zero volume except at premium prices in the Balancing Mechanism.

      This feature probably accounts for some element of the increased frequency of forecasts of high probabilities of Loss of Load (i.e. power cuts), and also applies to dispatchable generators. If your nuclear plant suffers a trip the cost in compensation under the Balancing Mechanism can be horrendous. Better not commit too far ahead. That means also there is less volume available to supply hedges to consumers.

  15. It doesn't add up... permalink
    January 9, 2023 6:48 pm

    The amount paid out is not a record – that belongs to 2020, when demand was depressed by lockdowns, and when CFDs were well above market prices. However, the total amount constrained off is a new record at 3.9TWh.

    The compensation was lower because Moray East didn’t take up its CFD, leaving it on market pricing. Constraint payments are awarded on a cheapest to constrain basis. Most wind farms that apply are on ROCs and are prepared to bid a price that preserves their ROC income. Moray East has to undercut by a small margin to ensure that they are awarded constraint payments. Note that the system leaves consumers paying for the most expensive generation – high value CFDs and ROCs, even though the market price is nominally low.

  16. frankobaysio permalink
    January 10, 2023 1:42 pm

    Latest Government Document on the future of UK Energy Security.
    Link:

    https://www.gov.uk/government/news/reforms-outlined-for-britains-capacity-market-to-secure-a-clean-energy-future?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=2d6ccc92-c9f3-466c-99c0-ebb4d702509f&utm_content=daily

    Interesting quotes.

    “Innovative technologies, such as batteries, are playing an increasingly important role in keeping the lights on across Great Britain.” Where?

    RenewableUK’s Chief Executive Dan McGrail said: “It’s vital that we decarbonise our electricity system completely by 2035” What will be the benefit?

    • teaef permalink
      January 10, 2023 7:20 pm

      Battery torches!

      • frankobaysio permalink
        January 10, 2023 10:02 pm

        Brilliant. How else can we see in the blackouts……….!

  17. johnbeechell permalink
    January 10, 2023 7:11 pm

    If it’s not illegal it should be…Do I heat, or do I eat, we are going backwards.
    JB

  18. johnbeechell permalink
    January 10, 2023 7:15 pm

    Much like the oil industry being payed compensation for empty wells, arguing that it’s empty so we don’t earn, and they got it.
    If I owned a shop would I be compensated for having no product as ive sold it all. Only precious things left.

  19. Mike Marks permalink
    January 10, 2023 7:15 pm

    Like payments made to those who had the capital to invest in solar panels.
    Tax should be paid on dividends.

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