Counting the Cost of Subsidised Wind Power: Some Basic Facts

The generation that have come to worship wind and solar power operate in a fact and consequence free zone, where logic and reason were bound and gagged from the beginning.

Their finest trait is their ability to shift the narrative, when troublesome facts – like blackouts caused by wind power output collapses and rocketing power bills – hit the headlines. Blame Tony Abbott, blame a right-wing conspiracy, blame STT, blame the weather, but never ever shall thy speak a word in anger against wind and solar power.

This collection of facts is of the kind that would make the heads of these precious snowflakes explode. The analysis is from the UK, but the fundamentals are applicable wherever the wind industry plies its subsidy soaked trade. Be sure to share them with wind and sun worshippers, wherever they congregate.

Wind Power–Some Basic Facts
Not a Lot of People Know That
Paul Homewood
12 August 2017

We see many glowing articles about wind power, and renewable lobbyists, such as Renewable UK, are often given undue space in the media to peddle mistruths. This article is designed to lay out some of the basic facts. It will naturally concentrate mainly on the UK, but I believe it will have relevance elsewhere too. Renewable lobbyists like to emphasise how “clean” wind power is, and how many tonnes of CO2 are saved. Others will argue that wind farms are a long way from being environmentally friendly, and arguably save little CO2 anyway. I am not going to get into these debates, as they are subjective, and therefore not relevant to an objective analysis.

Capacity and Outputs

So, first to some basic facts. Last year in the UK, according to government statistics, wind power generated 37.4 TWh, 11% of the UK’s total electricity. Of this, onshore produced 21.0 TWh, and offshore 16.4 TWh. Wind power capacity was 16.2GW at the end of 2016, and average utilisation was 28%. To put these figures into perspective, the CCGT plant at Pembroke, built in 2012, is rated at 2000 MW, and is capable of producing about 15 TWh a year. In other words, two Pembrokes could replace most of the wind power capacity in the UK.

Subsidies

There are basically three subsidy mechanisms for wind power in Britain:

  • Feed in Tariffs – designed for small scale operations
  • Renewables Obligation (RO)– this has been the main form of subsidy so far. The scheme places an obligation on UK electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources, or effectively pay for certificates instead. The scheme is now closed to all new generating capacity
  • Contracts for Difference (CfDs) – These are awarded to renewable projects via an auction process. Successful applicants receive a guaranteed Strike Price for the period of the contract (usually 15 years). This guaranteed price is inflation linked each year.

Whilst the renewable operator directly receives the market price for electricity produced, the government guarantees to top it up to the Strike Price. If the market price is greater, the reverse happens. CfDs are only available to renewable projects, although a similar structure is agreed for Hinkley Point. In terms of numbers, ROCs are valued at about £46/MWh, roughly the same as the current wholesale price of electricity. Different types of renewable generators receive different allowances. For instance, while onshore wind farms have been receiving 1 ROC per MWh, offshore wind ones receive 2 ROC.

Put simply, an onshore wind farm will expect to earn double the wholesale price, and an offshore will triple it.

CfD prices so far agreed for offshore wind range from £123.47 to 161.71/MWh, making them an even dearer option than ROCs. According to the Office for Budget Responsibility (OBR), the cost of subsidising renewable power this year will amount to £6.0bn. Of this, the Committee on Climate Change estimate that £3.1bn will go to wind farms. By 2021, subsidies for wind will have increased to £7.1bn, as capacity grows. This equates to £265 per household.

The renewable industry loves to publish surveys showing how much the public like wind power. I suspect their results would be very different if the public were told just how much they are having to pay for it!

Preferential Access to Markets

As well as the actual subsidies paid out, wind farms receive another huge commercial advantage by being given what amounts to preferential access to the electricity market. Put simply, they are pretty much guaranteed being able to sell all the power they produce, and, in the case of CfDs, at a guaranteed price as well. Anyone running a business will tell you that just how much this would be worth to them.

This preferential access works in two ways:

  1. The RO system places an obligation on UK electricity suppliers to source an increasing proportion of the electricity they supply from renewable sources.
  2. As wind farms only receive ROCs or the CfD guaranteed price if they actually supply power, they can afford to sell electricity at rock bottom prices, effectively undercutting other suppliers.

The CfD mechanism is particularly damaging to market forces in this respect. In theory, there is nothing to stop a wind farm selling at a penny per MWh, as it knows it will still get the guaranteed price anyway. There is no way that conventional producers can compete at this level. Without this ability to sell all of the power they produce, it is doubtful whether wind farms would be economically viable, even with subsidies.

Constraint Payments

If all of this was not bad enough, wind farms even get paid when they don’t produce, as Dr John Constable describes:

“There are currently about 750 wind farms north of the border, with roughly 3,000 wind turbines. Their total generating capacity amounts to 5,700 MW. The actual amount produced varies according to the weather. But at its maximum, that wind capacity is more than the 5.5 GW peak demand on the Scottish grid.

What this means, of course, is that the output from Scottish wind turbines is often more than the Scottish system can absorb. That requires the surplus energy to be exported to England and Wales. But that isn’t as easy as it sounds.

The wind farms are distributed across Scotland, sometimes in very remote regions, so there is a real problem in getting their energy down to the English border – let alone getting it across. For some years now, Scotland’s total export capacity has been only 3.5 GW, well under the peak output of the wind farm fleet.

So, reinforcements and new links are being introduced. These range from the hugely controversial, and to many environmentally unacceptable, £820 million Beauly-Denny upgrade, to the massive Western Link, a subsea connector from Hunterston to Deeside that is set to come online this year at a cost of more than £1 billion – and will entail a standing charge on energy bills across Britain of about £100 million a year for 35 years.

So, reinforcements and new links are being introduced. These range from the hugely controversial, and to many environmentally unacceptable, £820 million Beauly-Denny upgrade, to the massive Western Link, a subsea connector from Hunterston to Deeside that is set to come online this year at a cost of more than £1 billion – and will entail a standing charge on energy bills across Britain of about £100 million a year for 35 years.

Yet in spite of the cost, these upgrades cannot completely address the problem: there is still more wind power in Scotland than can be reasonably and affordably absorbed into the system, or exported to its neighbours, partly because the wind fleet keeps growing.

But a careless government and a lucrative subsidy system doesn’t explain the full flourishing of Scotland’s wind industry. Bizarre as it may seem, the fact that the Scottish grid cannot physically absorb all this wind power is also an attraction – because subsidised wind farms can actually earn more per unit generated when that unit is thrown away than when it is sold to consumers. In other words, they really do get paid more for not making sausages than they do when selling normally.

The explanation is simple. A wind farm receives roughly half of its income from the wholesale price and half from subsidy, the infamous Renewables Obligation Certificate (ROC). When the grid is either at or close to capacity, National Grid stops the wind farm from generating, in order to prevent damage to the overhead wires and, at worst, a major system disruption.

When this happens, the wind farm will keep its wholesale income – which is fair enough, since it was contracted in to the system. But it loses its ROCs, because those are only issued for electricity actually sold to consumers.

What happens then, however, is that the wind farm will ask for compensation for the lost ROCs. The euphemism for “being paid for not producing sausages” is “constraint payment”. And often – and this is the crucial point – they will ask for more compensation than they are losing in income.

For National Grid, this is just a pass-through cost, so they don’t care much about it – they simply increase the amount they’re charging consumers. But for consumers, it’s a truly terrible deal. Since 2010, we’ve paid £328m to wind farms not to generate – mostly to onshore Scottish wind farms, though England’s offshore farms have also started to get into the act. Last year, the total was £82m. This year, it’s already reached £50m.” https://capx.co/the-scottish-wind-power-racket/

Intermittency

It goes without saying that wind power is extremely intermittent. To cater for periods when there is little or no wind power, the government has contracted for standby capacity, via the Capacity Market mechanism. Currently contracts are arranged for up to 2020/21. For that year, the auction price ended at £22.50/KW of capacity, meaning a total cost for that year of £1.2bn. As with the subsidies, this cost is passed on to electricity users.

As more renewable capacity is added in future years, this cost will only rise. More problematically, nearly all of the current standby capacity contracted consists of existing generation, including coal and nuclear. As these begin to shut down, they will need to be replaced by new generation, which will certainly require a much higher price in order to be viable.

We are all familiar with the variability of wind power from one week to the next.

But it can also vary considerably on a day to day, and even hour to hour.

This creates big problems for the grid, which mainly has to resort to bringing on readily dispatchable power, normally from gas generators. Again, as wind power capacity is ramped up, this problem will feature more and more.

One further issue is that of inertia. Without going into technical detail, system inertia, as provided by conventional plants, such as coal, gas and hydro, is vital for the grid to cope with constant changes in demand and supply. Currently the grid can cope with the small amounts of wind power on the system, but as more wind capacity is added the problem of inertia will become greater. (There is an excellent explanation of system inertia here.)

Transmission

As referred to by Dr Constable, in the section above, the rapid growth of wind power has required considerable expenditure on upgrading/building transmission lines. This has proved particularly expensive and controversial in Scotland, where large amounts of wind capacity have been built in remote, mountainous areas. It is difficult to get figures from the National Grid or government as to just how much this is costing. Some estimates have put the cost as high as £40 billion eventually. What is certain though is the enormous environmental effect that these lines are having on the countryside.

Costs

There are frequent claims from the wind industry that they will soon be cost competitive against conventional sources. Whether they are right or not, however, totally misses the point because they are not comparing like with like. Wind cannot supply reliable, dispatchable power, and therefore is intrinsically worth less.

The US EIA recognizes this fact, and recommends using what is known as Levelized Avoided Cost of Energy (LACE) for comparing different technologies. They explain:

The US Energy Information Administration has recommended that levelized costs of non-dispatchable sources such as wind or solar may be better compared to the avoided energy cost rather than to the LCOE of dispatchable sources such as fossil fuels or geothermal. This is because introduction of fluctuating power sources may or may not avoid capital and maintenance costs of backup dispatchable sources. Levelized Avoided Cost of Energy (LACE) is the avoided costs from other sources divided by the annual yearly output of the non-dispatchable source. However, the avoided cost is much harder to calculate accurately.

Put simply, the total cost of a renewable source, such as wind power, must be compared with the marginal cost of the dispatchable source, say gas. The latter would be essentially fuel plus a few other variable costs. Latest government figures suggest that the marginal cost of CCGT would be about £40/MWh. The most optimistic costings that I have seen for onshore wind are over £70/MWh.

Fossil Fuel Subsidies

Whenever subsidies for wind power are mentioned, somebody from the renewable lobby usually pops up to claim that fossil fuels are also subsidised. Many countries provide consumer subsidies for energy, purely because affordable energy is important for their people. Because most energy is derived from fossil fuels, this is then interpreted as “subsidy for fossil fuels”. This of course is nonsense. The subsidies I have discussed are producer subsidies, ie payments are made to wind power producers.

While such subsidies may be paid to fossil fuel industries in other countries, I have always taken the view that is their decision, and we have no right to tell them what and what not to do. As far as the UK is concerned, oil and gas companies, or power companies using fossil fuels, receive no subsidies, to the best of my knowledge. On the contrary, over the years the UK Government has received tens of billions of pounds in revenue from oil and gas production, over and above ordinary corporation tax which all companies pay.

Global Wind Output

I have concentrated on the UK, but let me finish with a couple of statistics for worldwide wind power, from the BP Energy Review. At 959 TWh, wind power accounted for 3.9% of world electricity generation last year. In terms of overall energy consumption, the share of wind was 1.6%.

Every year we hear how wind power is going up by leaps and bounds. It is wise though to bear in mind just what a low base it is starting from.

Sources

  1. Electricity statistics https://www.gov.uk/government/collections/electricity-statisticshttps://www.gov.uk/government/statistics/energy-trends-section-6-renewables
  2. Office for Budget Responsibility projections of subsidies https://notalotofpeopleknowthat.wordpress.com/2017/03/11/environmental-levies-to-cost-57-in-next-five-years/

Not a Lot of People Know That

The place where facts get bound and gagged.

About stopthesethings

We are a group of citizens concerned about the rapid spread of industrial wind power generation installations across Australia.

Comments

  1. Crispin Trist says:

    Clearly Climate Change is not as serious as we are being told. If it were serious, then Governments would be building Nuclear power instead of ‘pissing in the wind’.

    On another point.

    Congratulations to 50 years of BBC local UK radio.

    However, now that SBS are showing the BBC nightly TV news, I can see that the BEEB still have a long way to go in getting to grips with the scam that is the Global Wind Industry.

    As for Peter Capaldi AKA Dr. Who. Shame on you for allowing yourself to get caught up in the wind farm scam by promoting Off Shore Wind Farms. A UK family member sent me the link below.

    The very fact the advert targets nuclear is a dead giveaway as to whom the wind industry’s main enemy is. Nuclear power!

    Keep up the great work STT.

  2. So far renewables have been riding on the back of the old power generation grids, with their basically reliable networks of power stations.

    But as these grids lose their older generators, such networks must start to crumble sooner or later, leaving unreliable renewables in a hopelessly exposed position – unless replacement power stations appear from somewhere.

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