Windfarms renege on electricity contracts for a second year
By Paul Homewood
Gaming the system may cost consumers
one £billion
Press Release
Major windfarms are again reneging on their promise to deliver power to the national grid at agreed prices.
A year ago, Net Zero Watch reported that the Moray East windfarm had become fully operational, but had refused to activate its Contracts for Difference (CfDs), under which it had promised to sell cheap power to the grid. This gaming allowed it to sell at elevated market prices instead, costing consumers hundreds of millions of pounds.
Last week it advised that it will put back the date for activation another 12 months. In addition, the CfD start date for Phase 1 of the Hornsea 2 windfarm, which became fully operational in August last year, has also been pushed back into 2024.
Delaying its CfD may have earned Moray East as much as half a billion pounds last year; putting it back another year could easily bring in another hundred million pounds at current market prices. Hornsea 2 could earn a similar amount in 2023/24.
Windfarms are entitled to do this under the CfD scheme rules, and there is scope for further delays. Moray East will be able to put off a final decision about whether to activate its CfD until March 2025. Some of the phases of Hornsea 2 will be able to delay until 2026.
Andrew Montford, Net Zero Watch deputy director, said:
“How long do Government and civil service think they can go on pretending that these windfarms are going to deliver cheap power? It is a deliberate, cynical deception and it needs to stop now.”
Comments are closed.
NOT A LOT OF PEOPLE KNOW THAT 
I wonder which incompetent Richard Edward wrote these contracts
One of Deben’s mates, is my guess.
Incompetent ? Paid off.
I doubt it. As it stands, the clause only benefits investors if market prices are significantly higher.
The government was desperate for low bids to “prove” wind was cheap, the investors wanted to win the bids. So we got unrealistically low bids with a clause that allowed those prices to double, triple, quadruple.
I trust this scandalous breach of faith has been reported to the appropriate minister. What are his comments? Yet another public company running rings round our dozey minister and civil servants.
All very odd. What are we supposed to understand by the use of the word ‘promise’? We all know what can happen to claimed promises in some business circles. Either there is an enforceable contract or there is only an option to enforce a contract exercisable by any generator with a CfD when it suits them . I guess that the government at the time granted this as an inducement to investors.
Question is what is enforceable against the wind farms and when. Promises alone are empty. The above press release should have been written with more discernment.
Agreed. And ‘renege’ is wrong. Following the contract is NOT reneging.
What breach of faith? It’s a contract with the clear option of taking market price instead. That our absurd civil service and their advisers thought market price couldn’t be significantly higher than the CfD strike price is their stupidity, for which consumers have to pay. The civil service wrote a bunch of contracts for gas some time ago that assumed the oil price would stay at $100 and increase. They were wrong. Now they’ve written a bunch of contracts that assumed gas prices would stay low and were wrong. They simply won’t learn that they cannot forecast the future.
A bit like the Climate models then!
I’m not surprised. They wouldn’t make much money, if any at all, if they take up the contracts.
Paul, have you tried writing to the main newspapers to explain how the ‘nine-times cheaper’ meme is (corruptly) calculated. We really do need to get this out to a wider audience so that the public can see for themselves how it is THEY who are being stiffed for the benefit of dubious operators in and around parliament?
Our pink haired friend on the other thread shouted its nine times cheaper so it must be
How can anything be 9x cheaper. Very bad expression like 10 times smaller. They mean a ninth of the cost or a tenth of the size. Very lazy language. X sign is a multiplier.
I agree they should say ‘a ninth of the cost.’ But clumsy usages like ‘nine times smaller’ have been used in some niches of science for a while.
Since wind power is being suggested for the whole of humanity, the appropriate estimates of alternative ‘costs’ have nothing at all to do with ‘money’ or ‘prices.’ Rather, it is common sense. How much effort will it take us to build and operate a wind turbine to produce X kwh of electricity before the turbine is scrap, compared to finding some more gas?
Anyone who thinks the answer is ‘one ninth’ ?
Of course, there may come a time when we start running out of gas, but that time seems to be perpetually receding into the future.
I always point out that gas (in the USA) was nine times cheaper than gas (in Europe) at the same time, and briefly. Meanwhile we see that average gas sourced electricity has remained cheaper than average wind sourced electricity throughout, because so much wind gets lavish subsidies on top of market prices.
When will the people rise up and put a stop to this gigantic scam?
Keep writing to your MP as I do, and some of the message will get through. I have just sent this new posting to my MP, as I did last year when this scandal was first exposed, and he promised to take a look at it. There was actually a question on this, at Liz Truss’ first PMQ. What action if any was taken is anybody’s guess. There are various campaign groups getting stronger and arranging protests, like the one in Trafalgar Square on April 15th mainly concerning ULEZ and LTN’s and 15 minute Cities etc; but also associated Climate Change rip-off nonsense. Jacob Rees-Mogg on his programme on GB News, actually read out my text to him regarding the OBR’s first estimate of the costs of Net Zero, £1.4 Trillion; that is £51,000 extra per household in the UK. He seemed surprised, as if he had no knowledge of this. These people live in a bubble and we have to get in.
Until, and unless, you send your MPs bigger bags of Cash than the “renewables” franchise has you are just plating with yourself–you know, Onanism. Get real–you have been played.
What I don’t understand is how with the proliferation of wind and solar power and the directly proportional increase in consumer electricity rates the “renewables are cheaper” meme can continue. If it isn’t a bias control over the media I don’t know what is and I don’t see how people can view it any other way.
It is very obvious that the media is not allowed to tell the truth .
The huge rises in energy costs to consumers came about before the Russian invasion , and mostly were caused by Carbon Taxes . This has also caused price increases for manufacturing , food production and just about everything leading to the current ” cost of living crises “.
The main aim of the CFD scheme seems to be to hide the enormous amount of subsidies given to renewables .
But to find the real truth in the media about the whole thing is just about impossible .
“make much money” ?
Steal as much money more like.
Larceny dressed as virtue
I can’t decide whether the ministers, civil servants and their advisers are stupid, corrupt or, more likely, both.
As they say in the airline business, the most expensive seats on the plane are the ones next to people like this.
If the government is enforcing its 45% windfall tax , what do people expect the operators to do?
https://www.theguardian.com/business/2022/nov/17/chancellor-extends-energy-windfall-tax-low-carbon-generators
OK. I got my mate to send the following letter to the DT…I won’t hold my breath.
“Sir,
It really is about time that a responsible newspaper with a responsible business plan blew the whistle on the false claim that renewably-generated electricity (mainly by wind) is NINE times cheaper than fossil-fuel-derived electricity.
As I understand it, wind farms have signed up for a Contracts for Difference (CfD) which determines the price they get for their generated output. However, for some reason, they are not obliged to take up their options for CfD which means that they can actually sell their output to the public at the market price (ironically, determined by F-F electricity sales). In doing so it was calculated that they could have sold their output a a price which, at one time in the market, was nine times cheaper than the market price. But they decided (legally) to delay their CfD contract and sell at the market price – which at one very short instant in time was actually nine times higher. And thus a meme is born.
So, renewables are NOT nine time cheaper: they merely sell to the highest bidder and make a fortune for their backers instead of selling at the price they initially agreed on. It is a legal scam perpetrated on the public and used by the acolytes of climate change to say that renewables are so much cheaper. This only goes to show that they are not cheaper: but they still remain incredibly unreliable and have a very poor history of availability. Let’s face it, you would not run your newspaper on wind and solar alone.
It surely is about time that a responsible newspaper publicised this lie.
Yours,”
We need to keep at them to tell the truth!
Thank you for explaining that.
An excellent letter, Harry. Fingers crossed that it get in!
‘costing consumers hundreds of millions of pounds’
I’ve told you a million times not to exaggerate.
Sadly Nigel Lawson has died.
https://www.bbc.co.uk/news/uk-politics-65167914
On the news they gave a curt dismissive reference to his position on climate change, words like…
‘ in latter years he lost 5 stone and disputed the idea of man-made climate change’.
They’ve done a fuller obituary, again included a gratuitous negative review of his book on CC.
https://www.bbc.co.uk/news/uk-politics-32725176
A fitting tribute.
Very sad news regarding his death. The BBC comment is disgusting.
The BBC is disgusting.
Across the Pond, here in America, I would say one word that would explain this all, Barrator Biden. Looks like you have your own well-paid government officials in the pocket of the wind farm owners. Face it–you have been played, sold out by your corrupt regulators and officials. I guess money is the only international language.
It’s the good old boy network at full swing. Surely my good friend wouldn’t lie to me. So no reason to check facts.
The wind generators should lose their priority access to the electricity market. Let’s then see how competitive they are!
As always in this benighted Country, follow the money?
The wind operators are playing within the rules, but the rules are wrong. They’re not charities after all.
As we suffer from inflated energy costs due to government policy and incompetence, Germany’s car production is seeping away due to their high costs. It is a coincidence that high energy costs are producing an hourly rate of 59E as opposed to 28E in Spain where Opel produce the Corsa and VW will produce its small battery car from 2025, or 13E in Hungary or Poland where Mercedes will build a battery van plant. Reliability of supply comes into it as this month Germany will close the last 3 nuclear plants for good.
And once again we can rely on the complete failure of our Civil Service and Government Minister to negotiate contracts which almost always manage to dump on the consumer . Where are OFGEN when they are needed ?
. . . and they don’t accept responsibility: they claim it is the wind farms fault.
A good reason to introduce windfall taxes then ?
How can it be the windfarms fault? The civil service agreed the contracts. More importantly, these wind farms took the market price because the market price was so high. That’s not their fault but the fault entirely of government actions. As I’ve said before, the massive arbitrage these windfarms are taking advantage of has nothing to do with them. It’s the fault of government.
Regarding CfD’s, my brain has been well and truly addled by years of mis or disinformation. The subject is a minefield.
As I understand wind farm operators make extra profits by NOT activating the CfD’s.
If they choose to trigger CfD’s they must repay the difference between higher market prices and guaranteed (but lower) CfD prices, which reduces their profits.
CfD’s are in place but not called upon, hence open market prices deliver a huge profit over what would be earned if CfD’s were triggered.
Is this correct or am I still missing something?
That’s about it. The odds are they will never trigget
There’s only a huge difference if market prices are very high. That’s the fundamental issue here. If market prices were around CfD strike prices, there would be no arbitrage. If market prices were pre-gas price spike prices, the CfD strike prices would be in the money. So the problem is the market price.
Yes my ‘huge difference’ was based on high prices.
OK thanks both. I’m off for a lie down.
The government is offering a virtual guarantee of perpetually higher prices given its ambition on carbon pricing. The most recent CCC study I looked assumed £250/tonne CO2e by 2025 rising to £400/tonne CO2e by 2035. That means that even if gas prices were to get down to 2020 levels electricity would be over £100/MWh in 2025, about twice the value of the low CFDs, and rising thereafter.
Face it, people–your ‘regulators’ are in the pocket of the wind industry, bought-and-paid-for. They figure, “Any country stupid enough to go All-in on wind deserves whatever screwin’ we can give ’em.” So they do.
It’s genius actually. Whilst the government can claim to the consumers that wind is cheaper than gas based upon the falling CfD prices, the wind estates are allowed by government to fleece the consumers for lots of money. What’s not to like, especially as the government can then apply windfall taxes for itself? If the government can continue to restrict supplies of gas to make gas expensive, then this scam can continue forever, particularly as gas will always be needed, even if in CCUS form, to stabilise the grid and for long-term backup.
To ensure the continuance of this scam the government will have to make sure that nuclear never gets a look in. Hence the latest wheeze to open up an international competition for SMRs to make sure they can select the worst possible technology at the most expensive price, as they did with Hinkley Point C.
No, that’s unfair. They get the market price, i.e. what we are paying to other generators (not those with activated CfDs though). They aren’t getting some separate deal, just the market price. Thus the issue is the market price. If that was below their CfD strike price, they would take that instead.
Phoenix44 :
I think you’ve misunderstood this article and CfD contracts. To quote the LCCC :
“How CFDs work:
CFDs ensure generators receive a fixed, pre-agreed price for the low carbon electricity they produce for the duration of the contract. This is known as the ‘strike price’.
Generators will receive revenue from selling their electricity into the market as usual, independently from the CFD. However, when the market reference price is below the strike price, they will receive a top up payment to the level of the strike price. This is calculated and paid by Low Carbon Contracts Company. Conversely, if the market reference price is above the strike price, the generator must pay back the difference.”
The point is that there’s a really clever clause built into the CfDs which allows the wind estates to NOT take up/follow their CfD contract if they so wish (viz when prices are higher than their contracted DfD price) and then they don’t “pay back the difference”. A very poor, one-way contract then for the consumer designed by Ofgem. There may be a maximum time allowed after the wind estate becomes operational before the contract price is enforced…but perhaps not…
Why continue to use a supplier(s) who demonstrates such contempt for the customer? Although a robust contract would be a good start.
The supplier should be in fear of the customer.
All they are getting is the market price. That’s what we are already paying. They aren’t demanding anything over what other (not all) generators are getting. Hardly contempt for the customer to get the market price. The issue is the market price is absurdly high because government has forced it high.
‘The issue is the market price is absurdly high because government has forced it high.’
Sunak has not condemned Biden and his business partners for blowing up Nord Stream 2.
Thus increasing wide spread poverty conditions across not only the UK but much of Europe.
In the meantime what is Shapps, serving as Secretary of State for Energy Security and Net Zero, doing about this situation?
It’s not a free market though. My view is that coal-fired without the believer’s penalties would be the cheapest for reliable baseload.
I also have a view that if there has to be a stilted, “unfree” market then the customer should be in control of it, administering kickings to the suppliers when required.
“I also have a view that if there has to be a stilted, “unfree” market then the customer should be in control of it, administering kickings to the suppliers when required.”
It’s not their capital. They can play or not play; that’s it.
” It’s not their capital. They can play or not play; that’s it.”
If the customer is big enough then the suppliers will play. A legitimate buyers’ cartel.
Obviously these windfarms would be a suitable target for a windfall tax. The useless civil servants behind these one-sided contracts could easily have put in place protection, at no cost to the taxpayer, but doubtless had no understanding of the implications of what are effectively options contracts.
Ahh . . . the ‘windfall tax.’ A hidden cost discouraging any investment at all.
BRILLIANT!
Capital moves to Brazil, Mexico, and China.
Some commenters here wish to punish businesses for the stupidity of their government. Go right ahead! Business leaves; you die.
In this instance it would be entirely justified. (By way of contrast I absolutely do not support the imposition of a windfall tax on O&G companies whose vital activities should not be impeded in any way).
Furthermore, if investment were to be discouraged in windfarms by such a measure, then that is of no concern at all.
The supranormal profits that have accrued to windfarm operators have been far in excess of anything that could have been envisaged. The solution was depressingly simple-if the W/farms could have been granted what was effectively a put option under the CfDs, then similarly they should have been required to sell a call option (perhaps at the HPC strike price?) that would effectively have capped their upside.
O&G majors may have been highly profitable in 2021/22 but as neither WTI nor US NG ever traded anywhere near their past highs the same rule does not apply.
I agree that to a considerable extent it has been as a result of government/civil service incompetence on an epic scale but there has been an extraordinary confluence of adverse events.
“In this instance it would be entirely justified.”
Cirrusly?
Companies made more than they should, so let’s take some of their money and GIVE IT TO GOVERNMENT!
Which solves what? Punitive action against business tells business they are in the wrong place to do business.
BWTM: Take money from business because they didn’t earn it and give it to government which earned the money how?
The irony is delicious.
The Generator Levy is going through with the Finance Bill at the moment and will be backdated to 1 January.
An eminently sensible response to the extraordinary circumstances of the past year, or so. I’m somewhat surprised at the low(ish) price at which the levy is applied).
So what happens to funds allocated to AR3&AR4 that cover these wind farms?
The funds are fictional. There is a rationing process that is used in the award of CFD contracts which is based on a whole series of fictitious assumptions, but which is designed to promote artificially low bids. No money changes hands on the back of it.
I wonder what would happen if somebody sprayed the offices of ofgem with green paint from a re-purposed fire extinguisher and superglued themselves to the entrance holding up a banner with “Ofgem are Frauds” on it?
BBC / ITV / Sky send a crew / reporters?
The Government have just released today an update on “Powering Up Britain” including Charts and verification of Sources of information. Link: https://www.gov.uk/government/publications/powering-up-britain?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=97c3f2bd-037a-4303-8c32-341fab1b3304&utm_content=daily
Oh, my!
‘Plans setting out how the government will enhance our country’s energy security, seize the economic opportunities of the transition, and deliver on our net zero commitments.’
Government produces ZERO energy. They just harass those who do.
Government seizing economic opportunities ?!?! Government is not a business. It’s not even a hobby. WTF is an ‘economic opportunity’ for government? New taxes?
If you actually ‘deliver on our net zero commitments,’ there will be no England anymore. Zero economy means zero military which means Denmark or Norway will have their way with you.
Andrew Mountford noted that Triton Knoll has now commenced the CFD for the part of the wind farm that had not done so. With indexation the price is now £107.19/MWh: it is not so far off market prices currently, and the CFD will exempt them from the Generator Levy. It still seems that a number of prices for the yet-to-be-built AR4 wind farms are not right following the indexation update. The yet-to-be-built AR 3 wind farms are now priced either side of £50/MWh at £49.77/MWh for Dogger Bank A (supposedly commissioning around year end, but very unlikely to commence the CFD) and Sophia, and £52.41/MWh for the rest of Dogger Bank and Seagreen. The most expensive offshore wind CFDs are now at £209.32/MWh.
Hornsea 2 (now £83.94/MWh) and Moray East (£74.49/MWh) are the other wind farms that failed to commence their CFDs and have no incentive to do so.
I would like to send a letter to my MP. I think that a draft with all the correct facts and figures would be useful. Maybe this as an opportunity to make a petition to Parliament for this outrageous profiteering.
I’ll do tomorrow Christopher