From NOT A LOT OF PEOPLE KNOW THAT
By Paul Homewood
We have been told repeatedly that our electricity bills would soon be much lower thanks to the reducing cost of offshore wind farms. Last summer, following the latest CfD allocation round, Kwasi Kwarteng grandly pronounced:
“Our renewable energy auction scheme has been an outstanding success, with the latest round securing enough clean energy to power twelve million British homes and the price of clean energy plummeting even further.
Getting contracts signed means projects can push on and deliver jobs and opportunities across the country. This will help to secure our homegrown supply of cheaper renewables and bring down the price of energy for millions of British families as we shift away from expensive fossil fuels.”
The allocation round he was referring to handed CfDs for 7 GW of offshore wind capacity at £37.35/MWh, in addition to another 4 GW of other renewables:
https://www.gov.uk/government/publications/contracts-for-difference-cfd-allocation-round-4-results
These prices are all at 2012 prices, but even at current prices, offshore wind is still cheap at about £47/MWh, bearing in mind that historically market prices have been around £50/MWh until the Ukraine war.
But there is one slight snag! None of these wind farms have been built yet, and detailed research of Annual Accounts has revealed that such low prices are simply not viable given the capital costs involved.
The lowest price currently being paid via CfDs for offshore wind power is £94.81/MWh to the Triton wind farm, which began operations two years ago. However, more recently other wind farms such as Moray East, which as a guaranteed strike price of £73.71/MWh, have opted to not take up their contracts yet, and instead sell their electricity on the open market at much higher prices, which are around £120/MW at the moment.
And it seems that, other than begging, the government is powerless to stop them.
I therefore decided to FOI both BEIS (now DESNZ) and the Low Carbon Contracts Company (LCCC), which is the government owned company that administers the CfD programme, asking what powers they have to enforce the contracts, or what penalties the generators would pay if they did not take up their contracts.
The answer I got back was that they have no power at all, and there are no penalties either.
This is the reply from LCCC:
The final paragraph has to be one of the most naive things I have ever read from a public body!
The DESNZ reply was similar, and included links to the actual contracts, which confirm there are no penalties or other consequences of a Pre-Start Date termination:
DESNZ’s only other comment was that projects that do not meet CfD delivery commitments are excluded from applying to the next two applicable CfD allocation rounds.
In essence, CfDs are no more than options, which the generator can choose to take up or not. On the other side of the coin though, the LCCC is legally bound to honour it.
It is highly unlikely that power prices will return to below £50/MWh in the foreseeable future, not least because the Emissions Trading Scheme is now artificially adding about £30/MWh to wholesale prices. It is therefore exceedingly unlikely that any of those renewable generators, who were successful in last year’s allocation round, will take up the option of a contract, when they can make much more money on the open market. And the same applies to all of the other offshore wind farms from previous rounds who have not yet commissioned.
So we can kiss lower energy prices goodbye!
We should remember that it was the disastrous Ed Davey who set up the CfD system in the first place, at a time when the Lib Dems were given control of DECC and energy policy.
He has a lot to answer for!
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