From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

Last month Claire Coutinho wrote to the new Chair of the CCC to complain that their costings for offshore wind power used in Carbon Budget 7 were woefully understated:

Topping has now replied with an object lesson in obfuscation, failing to address the issues raised. This is they key part of his response:

We have known for years that the LCOE costings produced by BEIS in 2023 were highly flawed where wind power was concerned. I won’t go into detail, as it has already been well covered by Andrew Montford and others. Suffice to say, BEIS used impossibly optimistic assumptions about the capital costs and load factors.

In addition, they also assumed a 30-year life for offshore wind, with no loss of efficiency. Above all, they worked on a hurdle rate – i.e. Return on Capital – of 6.3%. Interest rates when the report was written were still rock bottom, as they had been since the 2008 crash. Since then, they have gradually returned to historic norms. The LCOE measures not just “costs” but also finance costs/profit margins.

There is simply no way that Orsted or anybody else could finance wind farms at 6.3% anymore. That is why they pulled out of Hornsea earlier this year, even with a current price of £85/MWh.

There’s a useful tool on the BEIS website, here, in Annex B, which allows you to tweak the model. Their costing for offshore wind worked out at £43.17/MWh, at 2021 prices.

Increasing the hurdle rate to 10%, reducing life to 25 years and load factor from 64% to 45% increases that cost to £79.54/MWh – equivalent to £102/MWh at today’s prices. It is no coincidence that this is the sort of price AR7 will likely end up at.

Which all goes to show that you can make up pretty much whatever numbers you want! BEIS quite deliberately understated costs. In turn this has allowed successive Ministers and the CCC to gaslight the public and claim that renewables are cheaper than gas power.

The bottom line, of course, is that if the CCC’s costings really are correct, why is Ed Miliband offering to pay wind farms twice that cost, which already includes their profit margin?

If Miliband’s plans go ahead, we will soon be paying for 200 TWh a year of offshore wind, meaning the CCC have understated the cost of Carbon Budget 7 by £7 billion a year.