Cash Cow: UK Wind Farms Paid £650,000,000 in ‘Constraint Payments’ To NOT Produce Power

In the history of commerce, there’s never been a financial scam that comes anywhere near rivalling subsidised wind power.

In the past, sharp, entrepreneurial types have made plenty of easy money from ‘selling’ the London Bridge and the Eiffel Tower to unwitting dupes.

But scamming fools with too good to be true offers is nothing compared to what’s up for grabs in the so-called wind ‘industry’.

There aren’t many businesses where a major source of revenue is being paid to not produce what it is that your business is meant to produce.

STT is at a loss to find many other current examples that match the profligacy of paying what are called “constraint payments” to wind power outfits, so that they won’t deliver power to the grid when the wind is blowing.

And were not talking small beer, either. Over the last decade, British wind power outfits have collected over £650,000,000.

We covered the story in this recent post: Priceless: Scots Forced to Pay Wind Farms £650,000,000 To NOT Generate Power

Now, here’s a much more detailed analysis of what simply has to be the biggest scam in history.

A Decade of Constraint Payments
Renewable Energy Foundation
30 December 2019

2019 was the tenth year in which British wind farms have received constraint payments to reduce their output because of electricity grid congestion. There has been a total of £649 million paid out over the decade for discarding 8.7 TWh of electricity. To put this in context, this quantity of energy would be sufficient to provide 90% of all Scottish households with electricity for a year.

Because of a rapid growth in wind farms, particularly in Scotland, the total paid has tended to increase year on year in spite of grid reinforcements and new grid lines such as the £1 billion Western Link from Hunterston to Deeside, which was built specifically to export wind power from Scotland to English and Welsh consumers. Figure 1. displays this trend, showing payments rising from £174,000 in 2010 to a new record cost of more than £139 million. The quantity of electricity discarded in 2019 was also a new record at 1.9 TWh.

Figure 1: Annual constraint payments to wind farms via the Balancing Mechanism. Source: Balancing Mechanism, REF. Chart by REF.

Scottish onshore wind farms are far and away the largest beneficiaries of constraint payments, receiving 94% of the total in 2019, and approximately the same proportion averaged over the last ten years (see Figure 2). Scottish onshore wind received nearly £130 million in 2019, and more than £607 million over the decade. The remaining 6% of payments has largely gone to English offshore wind farms, with smaller fractions for Welsh onshore and Scottish and Welsh offshore wind farms. No English onshore wind farms have received constraint payments via the Balancing Mechanism.

Figure 2: Share of wind farm constraint payments 2010-2019, by wind location (onshore or offshore), and country, SC = Scotland, EN = England, WA = Wales (Rounding accounts for the sum not being equal to 100%). Source: Balancing Mechanism, REF. Chart by REF.

The number of Scottish windfarms receiving constraint payments has increased from three in 2010 to sixty-eight in 2019. The largest increase in wind farm numbers occurred in 2017, when eighteen new windfarms received constraint payments for the first time.

 

Figure 3: Wind farms receiving constraint payments for the first time, an animated geographical display. Click the play arrow on the map above to track the increase in Scottish wind farms receiving constraint payments over the decade 2010–2019 and their location. Each wind farm is coloured yellow and named in the year that it first received constraint payments.

Of the sixty-six onshore wind farms in Scotland receiving constraint payments over the decade, two large windfarms – Whitelee and Clyde – received nearly a third of the decade’s total, taking £108 million and £80 million respectively. The animated bar chart (Figure 4) shows how the costs of constraints to windfarms have accumulated over the decade from a slow start in 2010 when payments were made on only three days, increasing to eighty-two days in 2011, with a peak in 2017 when constraint payments were made on 244 days of the year. Wind farm constraint payments were made on 229 days of 2019.

 

Figure 4: Cumulative constraint costs by year for the top ten earning wind farms, an animated bar-chart race. Click the play button above the bar chart to view the animation. The colour of each wind farm indicates the year it first received constraint payments. Note that the intra-month costs are linearly interpolated for the purposes of the animation and the costs on each bar are shown to 2 significant figures only.

It is perhaps unsurprising that Whitelee, being the largest UK onshore wind farm and one of the earliest entrants into the constraint market, has received the largest constraint payment total. However, recent years have seen newer and smaller wind farms overtaking Whitelee, suggesting that the sites currently being chosen for wind farm development are in locations with poorer grid connection. Whether this is a deliberate choice, designed to maximise average earnings per MWh generated, is open to debate.

The animated bar chart below shows how constraint costs grew in 2019 and reveal that Kilgallioch, which was built in 2017 and is less than half the size of Whitelee, has received more in constraint payments in 2019. Similarly, Stronelairg, built in 2018 and also less than half the size of Whitelee, has risen immediately to fourth in the annual league table of constraint payments.

 

Figure 5: Cumulative constraint costs in 2019 for the top ten earning wind farms, an animated bar-chart race. Click the play button above the bar chart above to view the animation. The colour of each wind farm indicates the year it first received constraint payments. Note that the intra-month costs are linearly interpolated for the purposes of the animation and the costs on each bar are shown to 2 significant figures only.

In 2019, six wind farms were responsible for 50% of the constraint payment receipts, namely Clyde, Kilgallioch, Whitelee, Stronelairg, Fallago Rig, and Dunmaglass. It is particularly notable that of these six highly constrained wind farms:

  1. Stronelairg received planning permission in spite of being behind a grid bottleneck and was subject to a Judicial Review due to its impact on wild land. Moreover, there are currently two further neighbouring applications in process for Glenshero owned by the GFG Alliance, and Cloiche, which is proposed by SSE, the operator of Stronelairg.
  2. Whitelee, which opened in 2007 with a capacity of 322 MW, and was one of the first wind farms constrained off in the Balancing Mechanism, has been extended very significantly, with a further 217 MW entering service in 2012.
  3. Clyde was completed in 2009, but permission to extend the site with an additional 74 (172.8 MW) turbines was granted in July 2014 and completed in 2017.
  4. Fallago Rig is currently seeking an extension to add a further 12 turbines.
  5. Kilgallioch is also seeking an extension.

Wind farm owners charge more per unit to reduce output than they earn through generating. For wind farms subsidised under the Renewables Obligation (RO) the income foregone when instructed to reduce output is the value of the Renewable Obligation Certificates (ROC). Typically, wind farms ask to be paid much more than the lost income, and in the early days of wind farm constraint payments, the premiums charged for not generating were very high indeed. For example, in 2011, Crystal Rig 2 charged £991 per MWh to reduce output compared to the value of the ROC at that time of £42 per MWh. Kilbraur, Millennium, Farr, An Suidhe were charging between £200 to £320 per MWh constrained-off in 2011.

This was regarded as an abuse of market power, and the Government introduced the Transmission Constraint Licence Condition (TCLC) in 2012, which sought to prevent excessive bid prices in the event of a constraint. While there can be no doubt that the TCLC resulted in a reduction in prices, they are still well in excess of the subsidy foregone in 2019 as Figures 6 and 7 demonstrate.

Figure 6 shows the five onshore wind farms which received the largest premiums above the subsidy forgone and the five which received the smallest premiumin 2019. It is interesting to note that Andershaw, Blackcraig, Beinneun, Cour and Sanquar, which are receiving a high premium over lost income, are newer wind farms accredited after the ROC banding for onshore wind was reduced such that they receive 0.9 of a ROC per MWh in subsidy. Assuming the 2019 ROC value will be approximately £55, these wind farms would receive £49 per MWh if generating but ask for and receive £96-£98 per MWh not to generate and thus get a premium of £47–£49 above the subsidy when constrained off. The five wind farms with the lowest constraint prices are older wind farms which receive 1 ROC per MWh. In 2019, they were setting constraint prices of £64-£69 per MWh to reduce output, thus getting a premium of £10-£15 per MWh.

Figure 6: Average premium price (per MWh, above the foregone Renewables Obligation subsidy) paid to reduce output when constrained off in 2019 for the five most expensive and five least expensive onshore wind farms. The calculation assumes a ROC value of £53 for Jan-Mar 2019 and £55 for Apr-Dec 2019.

The RO-subsidised offshore windfarms which received constraint payments fall into various subsidy bands: 1, 1.5, 1.8 and 2.0 ROCs per MWh. Taking these variations into account, it is again the newer wind farms that are charging higher constraint payments with the most expensive five offshore wind farms making £52 – £74 per MWh more than the site-specific subsidy forgone. The five least expensive received £20 – £38 per MWh over their subsidy.

Figure 7: Average premium price (per MWh, above the foregone Renewables Obligation subsidy) paid to reduce output when constrained off in 2019 for the five most expensive and five least expensive offshore wind farms. This calculation assumes a ROC value of £53 for Jan-Mar 2019 and £55 for Apr-Dec 2019.

It is difficult to see any justification for compensation over and above the subsidy lost, and indeed REF has suggested, as many economists would argue, that constraints are a normal and entirely foreseeable commerical risk and should not be compensated at all. Indeed, REF infers from the data presented above that constraint payments are actually encouraging the siting of onshore wind farms in grid constrained areas. This is clearly not in the public interest, and entails a significant cost to electricity consumers, who ultimately fund constraint payments through their bills.

Finally, it must be remembered that the cost of mislocating wind farms in areas with weak grid connection or behind constraints is much greater than the direct payments to wind farms themselves, large though these are. When a wind farm is constrained off the grid on one side of a grid bottleneck, National Grid as the system operator is required to make up the short fall in electricity by paying other generation (usually gas-fired) to increase generation on the other side of the bottleneck. Over the last ten years, the overall cost of constraints has risen by nearly 400%, from £165 million in 2010 to £636 million in 2019, reflecting the expense and difficulty of integrating a large wind fleet, and increasingly a large solar fleet, into the GB electricity grid.

Figure 8: Running twelve month total cost for all grid constraints from January 2010 to December 2019 demonstrating the four-fold increase over the decade.

Renewable Energy Foundation

About stopthesethings

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

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