Tag Archives: offshore wind

Govt Quietly Drops Promises Of Cheap Renewable Energy

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

It looks like the government is opening the door for higher prices for renewables:

Government seeking views on introducing Contracts for Difference reforms rewarding applicants for including factors not only based on price in projects.

  • Potential reforms to Contracts for Difference could mean applicants would be rewarded for including wider benefits their projects could bring when submitting price bids to government for their low-carbon electricity
  • these ‘non-price factors’ could include supply chain sustainability, addressing skills gaps and innovation, help drive investment in the sector and boost country’s energy security
  • today’s step builds plans to create a more secure energy future and grow our economy, by supporting thriving green industries and high quality jobs
    • Potential reforms to Contracts for Difference could mean applicants would be rewarded for including wider benefits their projects could bring when submitting price bids to government for their low-carbon electricity
    • these ‘non-price factors’ could include supply chain sustainability, addressing skills gaps and innovation, help drive investment in the sector and boost country’s energy security
    • today’s step builds plans to create a more secure energy future and grow our economy, by supporting thriving green industries and high quality jobs

A major reform to the government’s flagship renewables scheme that could help drive further investment in renewable energy deployment and improve energy security is being explored in plans set out today (Monday 17 April).

The Contracts for Difference (CfD) scheme is the government’s mechanism for supporting new British low-carbon electricity generation projects, such as offshore wind and solar developers, and along with FIDER, an early form of the scheme, has awarded contracts to new low carbon projects in Britain with a total capacity of 26.1GW.

The competitive nature of the scheme has already proven successful at placing downward pressure on prices since the first auction was held, with the per unit (MWh) price of offshore wind dropping by almost 70% between the first auction in 2015 and the latest in 2022.

Currently, Contracts for Difference are awarded based on the bid price submitted by renewable energy generating stations, such as an offshore wind farm – the aim being to increase deployment and ensure good value to electricity consumers and, over time, drive down costs.

The government is now seeking evidence and views about reviewing applications not just on their ability to deliver low-cost renewable energy deployment, but also based on how much a renewable energy project contributes to the wider health of the renewable energy industry.

These reforms could see applicants considering overall costs alongside other ‘non price factors’ – such as supply chain sustainability, addressing skills gaps, innovation and enabling system and grid flexibility and operability – when submitting their bids, which could help drive investment in the sector, grow the economy and boost the country’s energy security.

More investment in supply chain sustainability, for example, would help to reduce its carbon impact and access the resources and materials it needs to deploy sustainability at scale in the longer term. Investment to address the skills gaps would help to train the technicians needed to deploy ever larger renewable energy generation stages.

https://www.gov.uk/government/news/government-explores-major-reform-to-flagship-renewables-scheme-to-improve-energy-security-and-drive-investment

It is now beyond clear that offshore wind farms and others awarded CfDs at ultra low prices in the last round of auctions have no intention of taking up their contracts, instead preferring to opt for much higher market prices. Indeed they would soon go bankrupt under their contract prices, which are simply not economically viable.

The government has attempted to fix this problem in future auctions, by amending the contracts to force generators to trigger them as soon as they begin operations.

But this in turn is making said generators reluctant to bid at such low prices. This latest consultation suggests that the government will find a way to smuggle higher prices through the back door, using spurious arguments about supply chains and green  jobs as an excuse.

This quote from the Government’s press release rather gives the game away:

The idea that costs have suddenly just taken off is utterly absurd. In any event, CfD strike prices are index linked from 2012 prices, so if there has been a 10% inflationary increase in the last year, this would automatically be factored into the strike prices in due course.

We can expect to see much higher prices for renewable electricity coming through in future CfD auctions, “justified” by the claim of green jobs, sustainability and the rest of the crap.

And the promises of cheaper energy will quickly be forgotten.

Contracts for Difference Subsidies On The Rise Again

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

The renewable lobby were quick to brag that the Contracts for Difference scheme was paying back money to energy users last year, when market prices of electricity spiked. But they have remained strangely silent since, now that market prices have fallen back, with the result that the subsidy conveyor belt is now running again.

In Q1 this year, subsidies for wind and solar power via CfDs totted up to £222 million, which will filter through on to our bills in months to come. Although onshore wind and solar still show negative subsidies of £9 million, offshore wind, which makes up 92% of the generation, gobbled up a subsidy of £231 million, with an average strike price of £166/MWh, compared to a market price of £120/MWh.

In reality, the subsidy is much bigger than the official figures say. The Emissions Trading Scheme adds £31/MWh to market prices, by artificially increasing the cost of gas generation. The real, underlying market price is therefore about £89/MWh, meaning that the real subsidy under CfD is £167 million higher than shown.

CfDs of course are just the tip of the iceberg, as far as subsidies go. The Renewable Obligation scheme will hand renewable generators about £6.8 billion this year, about 12% higher than last year thanks to indexation.

Lazard: still unreliable

From Net Zero Watch

By Andrew Montford

A year ago I was rather critical of Lazard’s annual report about the cost of power generation, in particular in relation to offshore wind. The 16th edition of the report has just been published, and there are some interesting changes.

The most egregious problem last time round was capex, and so it’s good to see that Lazard have bumped up costs for the new edition, by 20% for their optimistic assumptions and by 40% for the pessimistic. That gives a new range of $3000-5000 per megawatt of capacity. The graph below shows this range (in pink) alongside build costs for recent UK offshore windfarms (converted to USD at 1.3). So they are now in the right ballpark.

Figure 1

However, elsewhere, things are not so plausible.

For capacity factors, Lazard seem less sure of themselves. The pessimistic figure has fallen from 49% to 45%, while the optimistic one has risen, from 53% to 55%. The 2023 range of 45%-55% is, however, implausible. The output of offshore windfarms declines over their lives, and the levelized cost calculation should reflect that. Lazard’s numbers are barely acceptable as estimates of first year values, let alone a lifetime average. This can be seen in Figure 2, which shows the Lazard range, again in pink, against the same set of recent UK offshore windfarms. The diamonds represent the average capacity factor to date, while the black tails represent the range of values into which the lifetime average is likely to fall.

It’s the same story for operational expenditure. Lazard’s new range is $60-80,000 per megawatt of capacity per year. Recent UK windfarms have been spending at a rate of over $150,000 per megawatt (again converted from Sterling at a rate of 1.3), and, because opex increases over windfarm lifetimes, the lifetime average will be more like $200,000/MW. This is shown in Figure 3.

Overall then, Lazard’s figures remain highly implausible, and they remain a highly unreliable source for information about energy costs.

Net zero subsidies are a disaster for Britain

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

Much has been written about Nigel Lawson, who died last week, but one quality jumps right off the page. Lord Lawson didn’t very much care if he was liked, and didn’t ingratiate himself with fashionable opinion.

This is exceptionally rare in a politician, as it requires a combination of personal confidence and great courage. Fortunately, Lawson had both in abundance.

What a refreshing contrast to today’s politician or policy operative. Their craving for approval was savaged by James McSweeney in The Critic last week, as the Conservative “Please Invite Me to Dinner Brigade”. This was, he wrote, “a caucus best defined by an obsessive desire to be liked in London media circles and bitter opposition to the core values of their voters”.

By contrast, in his final book Lawson scorns “feelgood measures… popular among parts of the Western middle classes”. Indulging them has only encouraged younger conservatives to trash one of Lawson and Thatcher’s singular intellectual legacies: state aid policy.

When Lawson became financial secretary to the Treasury in May 1979, the intellectual elite across Europe and Western business believed that state aid was a moral duty. The consensus was overwhelming – in 1981, Communists joined Francois Mitterand in his first Cabinet.

Challenging this orthodoxy was almost unthinkable. So the 1979 Conservative manifesto was tentative, reflecting how cautious the new administration felt it had to be. It merely said: “Government strategies and plans cannot produce revival, nor can subsidies. Where it is in the national interest to help a firm in difficulties, such help must be temporary and tapered. We all hope that those firms which are at present being helped by the taxpayer will soon be able to succeed by themselves.”

A decade after Lawson left office, the old consensus had been shattered so comprehensively that nations queued up to bind themselves into a complex new framework of international rules designed to inhibit state aid.

The Business Department lists seven such frameworks, four of which are administered by the World Trade Organisation. We left one, of course, the European Union’s state aid scheme, after which then-business secretary Kwasi Kwarteng promised a review.

“We will not, of course, return to antiquated command and control methods of economic management, or encourage wasteful use of public money by propping up failing businesses,” he said.

But that was a pious wish too. For once again, we have become a nation of subsidy junkies. Margaret Thatcher’s Methodist thrift is a distant memory.

Today the state is an apparently bottomless pit of prizes. Richard Branson got a little of your money – a few millions – for his now-bankrupt Virgin Orbit. Mobile operators and equipment giants get a little for “network diversification”.

There’s a subsidy to soothe every ailment. When a request to save a failing business is declined – as it was with electric car battery maker Britishvolt – it is so rare that the refusal actually makes the news.

Sadly, some of those who could be heard eulogising Lord Lawson last week have played the largest role in setting fire to his legacy.

The Conservatives once boasted a formidable intellectual apparatus in SW1, but they have become lobbyists for vested interests – for an industry that wouldn’t exist without favours or without government bucking the markets.

This is the “low carbon” energy sector. Scan the list of think tanks – the Centre for Policy Studies, the Social Market Foundation, or newer operations such as Onward and Britain Remade and Net Zero loom very large.

The European Climate Foundation – and, inevitably, Octopus Energy – underwrite much of this work. When the GB News’ presenter Tom Harwood recently eulogised wind and solar energy as “capitalist and cool” on Twitter, he was reflecting the happy-clappy optimism of his social circle. But we were being invited to applaud the jailor who jails us, in the form of high energy prices and low energy security.

Rather than making the case for free markets, where the cost and benefits of the technologies are reflected in their price, this flotilla of “market-friendly” think tanks have become PR operations, obscuring the costs and exaggerating the benefits.

We know that onshore wind is not remotely capitalist thanks to Lord Lawson, too. His most unpopular and thankless cause of all was attempting to create a rational debate about energy policy.

He established The Global Warming Policy Foundation, a tiny operation which is almost unique in discovering the true costs of the green gravy train. The racket isn’t just about subsidies, but about shifting the costs to consumers – and then hiding those fees.

However, the case for maintaining these painful green programmes is vanishing before us. President Biden has devoted an astonishing $369bn (£297bn) in his misleadingly named Inflation Reduction Act to subsiding “low carbon” technology development. For the next five years, developing anything in the United States that qualifies is essentially cost and risk free. This is a massive market distortion. It is also a race we cannot win.

In his 2008 book An Appeal To Reason, the late chancellor warned there would be a price to pay for courting green approval.

“While fine words are cheap and probably politically attractive, the deeds to match them are anything but cheap and almost certainly politically unattractive,” he said.

Lord Lawson couldn’t care less for flattery  – and he will surely have the last laugh.

https://www.telegraph.co.uk/business/2023/04/10/net-zero-subsidies-are-a-disaster-for-britain/?fbclid=IwAR1L0B95140MWVrbJ05jfyy5dQuaKP2ybF6I_Qt6QMCPG7VOnvKv63FrVRI