Tag Archives: Orsted

Offshore wind has a big up and down week

From CFACT

By David Wojick

The tumult in US offshore wind development has taken several steps lately, some forward, some not so much. Here is a quick overview of three serious events that are worth careful consideration.

First is the question of whether the developers will be able to bring forward their cost crisis and stick it to the ratepayers. As regular readers know, a lot of offshore wind project contracts with the client States have been pulled by the developers. They hope to come back with a higher price to cover their suddenly increased costs. The big Danish developer Orsted just pulled another contract in Maryland.

Well, the first of these new high-cost offers has indeed been accepted, in this case, by New Jersey. After all, the governor says, they want to go the impossible 100% renewables route as quickly as they can, making costs politically irrelevant. New Jersey ratepayers be damned.

There is a good chance that the other North Atlantic states will follow New Jersey, especially New York, Massachusetts, and Rhode Island, which have huge offshore wind construction targets.

Possibly countering this big push for wind is a major new lawsuit that has just been filed. The complaint is here: https://www.scribd.com/document/700695015/Offshore-Wind-Lawsuit

This suit alleges something that is obviously true, having been widely discussed here at CFACT. The Federal agencies that have quickly issued the offshore wind permits have simply ignored the destructive environmental effects. This is especially true for the collective impact of combinations of nearby projects.

Thus, the argument is procedural rather than substantive. Plaintiffs are not asking the Court to rule on the environmental science, which Courts are reluctant to do. They just want the Feds to do the proper job as mandated by the applicable environmental protection laws, of which there are several.

The complaint has two dimensions of consideration. One is the adverse impact of wind development on fish and, therefore, on the fishing industry. Thus, one of the complainants is a fishing trade association. One of my favorite legal maxims is “Never argue substance when you can argue procedure.”

The other dimension is the adverse impact on endangered species, especially whales. One of the plaintiffs is the Save the Right Whale Coalition. Here, the narrow issue is the threat posed by enormous offshore wind development to the severely endangered North Atlantic Right Whale.

Speaking of enormous, here is a good picture of one of the unbelievably huge monopiles driven into the sea floor to hold up an offshore wind turbine generator. The pile dwarfs the people. https://www.offshorewind.biz/2023/07/03/eew-rolls-out-first-ocean-wind-1-monopile/

The noise of this pile driving is extremely loud, disrupting the lives of whales and other endangered species. This disruption is not only recognized by the Feds, it is specifically authorized by NOAA. The disruption is called harassment, and every offshore project has a pile driving harassment authorization, which typically includes thousands of hapless marine mammals.

That this systematic harassment can cause deadly behavior on the part of the thousands of harassed critters is one of the top ongoing complaints against offshore wind development. For example, scaring whales into heavy ship traffic where they can be struck and killed.

Which brings us to our third big event. The Feds have just released the final version of their so-called “North Atlantic Right Whale and Offshore Wind Strategy”. I say so-called because there is no strategy.

The Federal plan is to drive the thousands of piles on a bunch of big projects, many at the same time, and see what happens to the whales. The word “harassment” does not even occur in the document. Deadly harassment is simply ignored.

See https://www.fisheries.noaa.gov/media-release/noaa-boem-announce-final-north-atlantic-right-whale-and-offshore-wind-strategy

If the Right Whales go extinct, there is no way to bring them back, so watching and waiting is not a protection strategy. This is the kind of systematic denial that the lawsuit calls out.

So there it is. The price of offshore wind may be going way up, but a lawsuit is asking for a more complete look at the adverse impacts. Meanwhile, the impact of offshore wind on severely endangered whales continues to be ignored by the development agencies.

The times they are a changing. Stay tuned to CFACT.

Scorched Earth: Subsidised Wind & Solar Wreaking Economic Havoc Everywhere

The renewable energy industry is in full collapse mode this week. First, Orsted A/S, the world’s largest offshore wind farm developer, abandoned two major US projects due to supply chain and interest rate impacts, and now solar stocks are being clubbed like a baby seal in US premarket trading on Thursday after solar equipment-makers SolarEdge and Sunrun reported dismal guidance amid waning demand. 

From STOP THESE THINGS

Keep cranking up power prices and watch your economy slowly disappear. Subsidised wind and solar guarantee the former and the latter simply follows.

Every country that has tapped into the so-called wind and solar transition is suffering from power prices that are simply out of this world. Australia is a case in point.

Having just been whacked with 20-30% increases in their power bills – on top of increases of between 10-20% in retail power prices that took effect throughout the financial year – many Australian households and businesses will see a 50% jump in their power bills in less than 12 months.

And yet, Labor party apparatchiks reckon that the solution to the unfolding disaster is simply more of the same; much, much more. As Nick Cater explains below.

Labor’s renewable ‘investments’ are just blowing in the wind
The Australian
Nick Cater
6 November 2023

The floundering offshore wind turbine industry received some welcome news from Australia last week with a strong hint from Jim Chalmers of more sugar on the table for renewable energy.

The promise of what the Treasurer euphemistically called “more decisive action across all levels of government” is a sign of increasing desperation as the government’s emissions-reduction timetable falls hopelessly behind.

The giant boring machine crawling beneath the Snowy Mountains is an apt metaphor for the government’s progress towards its 2030 target. Both projects were based on heroic assumptions, ­neither were adequately surveyed, and both have turned into giant sinkholes for capital that could be better spent elsewhere.

It will be little comfort to know that ours is not the only government to discover that the carbon challenge cannot be overcome simply by setting targets.

Joe Biden’s dream of deploying 30 gigawatts of offshore wind turbines by 2030 is in tatters after a string of cancelled projects. Last week, Danish wind energy company Orsted dropped two projects that would have installed more than 200 giant turbines off the New Jersey coast. Orsted’s stock has fallen 60 per cent this year and The New York Times estimates it will have to write off billions of dollars in investments in the two ­projects. Orsted is not the only company encountering headwinds.

Britain’s target of 50GW of offshore wind by 2030 can only be met with substantial subsidies and revenue guarantees. The Swedish company Vattenfall abandoned a giant offshore wind project off the Norfolk coast earlier this year, blaming a 40 per cent rise in costs. The latest auction for offshore wind licences failed to attract a single bid.

Anja-Isabel Dotzenrath, BP’s head of low-carbon energy, told a Financial Times conference on Wednesday that the US offshore wind industry was “fundamentally broken” and required a “fundamental reset” to help the nascent market grow. Mounting problems included approval delays, long timelines and escalating interest rates that have caused financing costs to soar.“There’s really not a Plan B right now,” environmentalist Jeff Tittel told the New York Times. “It’s a political disaster.”

Enter Energy Minister Chris Bowen who told the Asia Pacific Offshore Wind and Green Hydrogen Summit in August that Australia had big ambitions for offshore wind. “We aren’t just building an industry from scratch,” he said. “We are building an industry in which we want to be a world leader.”

Bowen has announced five offshore wind zones in the past year, with a sixth between Bunbury and Perth expected to be formally ­announced this month.

The numbers, sprinkled like fairy dust in the minister’s press ­releases, are too silly to believe. The Hunter, Illawarra and Southern Ocean zones alone will provide enough electricity to power 16 million homes, according to the minister. In a country of 9.7 million households, that would be impressive if it were true, rather than a scribble on the back of an envelope.

We are told that the energy ­capacity of the five offshore wind zones in the eastern states will be 43GW. That means constructing 5400 turbines with a boilerplate capacity of 8MW, or one a day for the next 15 years. On a conservative installation cost assumption of $US1.3m a megawatt, that would require a capital investment of $86bn.

“We need you,” Bowen told the industry gathering. “We need your capital. We need your investment. We need your experience.

“The Australian government is deadly serious about our journey to become a renewable energy superpower.”

Reducing emissions is not as easy as Labor seemed to assume when it announced its 82 per cent renewable-energy target two years ago. The construction of onshore wind, grid-scale solar and transmission lines has fallen way behind the government’s timetable. Offshore wind, with its long lead time and significant capital costs, is an even larger challenge.

Yet building the extra generation capacity to meet the government’s 2030 target is only the beginning. The additional power that would be needed to manufacture green hydrogen on an industrial scale has barely been discussed. Yet the amount is considerable.

Plans for the proposed renewable energy hub in Gladstone, Queensland, for example, include a facility to export 4MT of green hydrogen a year. That would require 110GW of renewable energy capacity, according to a presentation by Gladstone Ports Corporation chief executive Craig Haymes at a recent engineering conference. It means an extra 10,000 wind turbines or 2500sq km of solar panels, an area the size of Fraser and Mornington Island combined.

Some attendees thought Haymes may have been trying to can the project by putting the figures on the table. Yet in a statement, the Corporation said Haymes had merely wanted to illustrate “the potential for renewable energy for Queensland and the opportunities this presents”.

Green hydrogen is at a nascent stage. It is an inefficient and hazardous way of storing electricity, and there is no serious industrial ­demand. It comes with huge capital constraints.

Yet governments in the US, Europe and Australia are investing billions of dollars of seed capital into hydrogen produced by renewable energy without a care in the world as to where the energy will come from.

In a speech to The Australian’s Economic and Social Outlook Conference last week, Chalmers flagged a “uniquely Australian” revamp of energy policy to prise an extra $225bn in capital from the hot little hands of private investors. He promised measures in the 2024-25 budget “to get private capital flowing towards our priorities effectively and efficiently”.

The hubris in this statement bodes poorly for our future prosperity. Diverting the flow of such huge sums of private capital to government pet projects, however noble the intentions, is the road to economic ruin. The investors withdrawing from renewable energy projects are responding to price signals. Private investors have a keen nose for snake oil. They are trading off costs and benefits and assessing the technical feasibility of projects with rigour this government has failed to match.

“Australia is, to be honest, a bit like the kid who forgot to study for an exam early in the process and is pulling all-night study sessions,” Bowen told the August conference. “But now we are working 24/7 to catch up.”

The tragedy is that Australia was gifted the chance to learn from the mistakes of others. Bowen’s obstinacy comes at a price.
The Australian

Orsted Mulling Private Power Deals For Hornsea

A prominent energy project in the UK is reportedly considering the option of engaging in private agreements to secure its future. This potential shift towards private power agreements is driven by mounting concerns regarding the project’s escalating financial costs.

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

h/t Ian Magness

The developer behind one of Britain’s largest offshore wind farms is exploring ditching state subsidies in favour of private power deals as it scrambles to boost the project’s finances.

Ørsted has confirmed it may give up some government support that would apply to Hornsea 3, off the coast of Yorkshire, amid concerns that the subsidies it has been awarded are too low.

Instead, a spokesman said the company may seek to sell 25pc of the scheme’s power on a so-called merchant basis – where it receives no state support but can potentially reap bigger returns.

This would amount to selling about 700 megawatts of the wind farm’s planned 2.8 gigawatt (GW) output, a total which is enough to power three million homes.

The move comes as Ørsted’s bosses scramble to boost the viability of the scheme ahead of a final investment decision, expected by the end of this year.

On Friday, bosses at Ørsted told financial analysts they were examining an option to pass over 25pc of the CfD contract so the company would instead be free to sell power from the scheme for a higher market rate.

This could potentially boost returns from the scheme – assuming the company can secure better prices for the power privately than what it is guaranteed under Hornsea 3’s CfD.

Ørsted, the world’s biggest offshore wind developer, has insisted it intends to press ahead with Hornsea 3 in “all scenarios” but has yet to take a final decision.

The project is scheduled to begin generating in 2026 and has been awarded a subsidy deal worth about £45 per megawatt hour in today’s prices – less than what was offered in the most recent subsidy auction.

The pool of potential buyers for the 700 megawatts of power on offer is likely to be confined to heavyweight companies with big electricity demands.

Kathryn Porter, an independent energy consultant and founder of Watt Logic, said Ørsted faced a difficult choice between “locking in at a really low level of return or taking bigger risks and being able to make more money”.

She added: “They may take a view that they can get the project over the line because electricity prices will be high enough that they can make a decent enough return.

“Experience to date, however, shows that UK power market investors do not have much appetite for risk.”

A key risk is whether the Government would extend the Electricity Generator Levy – which affects receipts from power sold at more than £75 per megawatt hour – beyond March 2028.

Ørsted was threatened with a credit downgrade by ratings agency S&P last week after taking huge writedowns on the value of its offshore wind projects in the US.

https://www.telegraph.co.uk/business/2023/11/04/scramble-keep-uk-offshore-wind-farm-project-alive-power/

The terms of the CfD are quite clear – it is all or nothing. Orsted are under no legal obligation to trigger their contract, in other words take up their option to sell. However, if they do, they must sell all of the electricity they supply to the Grid under CfD terms. The only way to avoid this would be to transmit power direct to an end user, bypassing the Grid.

And, I suspect, the government will be loathe to amend the contract to allow what Orsted want.

With market prices as they are at the moment, there is no logical reason why Orsted should not sell all Hornsea’s power via PPA’s. But as Kathryn Porter points out, investors in offshore wind farms like certainty, not risk. And the Electricity Generator Levy, if extended past 2028, would take away a large chunk of any excess profits.

Work on installing the turbines is not expected to start till 2026. Despite Orsted’s protestations, there is an increasing likelihood that they will pull the plug on Hornsea.

But whether they do, or sell via PPAs, private consumers will not benefit from the low prices already contracted.

Dogger Bank

Meanwhile SSE’s Dogger Bank offshore wind farm, which began generating last month, has still not appeared to have triggered its CfD, currently priced at £49.77/MWh.

I’m waiting confirmation from the Low Carbon Contracts Company, but it seems that they too will sell at much higher market rates.

Shell Exits US Southcoast Wind Farm Contract, Agrees to Pay Penalty

Shells finance chief said on Thursday the firm had exited a power purchase agreement (PPA) for the planned SouthCoast windfarm off the coast of Massachusetts, agreeing to pay a penalty rather than face rising costs for building the project.

https://www.reuters.com/business/energy/shell-exits-us-southcoast-wind-farm-contract-agrees-pay-penalty-2023-11-02/

LONDON (Reuters) – Shell’s finance chief said on Thursday the firm had exited a power purchase agreement (PPA) for the planned SouthCoast windfarm off the coast of Massachusetts, agreeing to pay a penalty rather than face rising costs for building the project.

Energy firms from BP to Orsted have announced hefty writedowns in recent days for their U.S. windfarm projects in the face of high inflation.

 Read the Original article here. 

Siemens Energy’s Green Dream Meets Reality: Renewables in Distress

Things are so bad Olaf Scholz, Chancellor of Germany has even said Siemens Energy is “very important”.  Apparently talks are “intensive”, which presumably means the company is on death’s door and the German government is being asked to help save it.

From Watts Up With That?

From ZeroHedge

In a recent revelation, the green energy sector shows signs of distress, as illustrated by the plummeting shares of Siemens Energy. An article on ZeroHedge meticulously unfolds the tale of challenges and uncertainties clouding the renewable energy sector, with Siemens Energy at its epicenter.

“Siemens Energy shares in Germany crashed on Thursday after the company warned its wind turbine business is grappling with quality issues and offshore ramp-up challenges.”https://www.zerohedge.com/commodities/siemens-energy-shares-crash-37-renewable-bust-sparks-green-panic

The company is in the throes of quality and operational challenges, which have significantly impacted its market performance, leading to a staggering 37% crash in its shares in Germany.

Siemens Energy candidly expressed its ongoing struggles, stating that it is

“working through the quality issues and is addressing the offshore ramp-up challenges as announced in the third quarter communication for fiscal year 2023.”https://www.zerohedge.com/commodities/siemens-energy-shares-crash-37-renewable-bust-sparks-green-panic

The company also revealed a rather cautious approach moving forward, refraining from concluding new contracts for certain onshore platforms and exercising strict selectivity in the offshore business.

The article further unveils the broader landscape of challenges faced by the renewable energy sector. It’s not just Siemens Energy feeling the heat; the entire offshore wind power industry seems to be in the midst of a financial crisis.

“Soaring inflation costs have undercut the sector’s growth and left major projects dead in the water just when their output is most needed.”https://www.zerohedge.com/commodities/siemens-energy-shares-crash-37-renewable-bust-sparks-green-panic

The narrative of Siemens Energy is not an isolated incident but seems to be a reflection of a broader trend in the renewable sector. Other giants in the industry, such as Orsted A/S, the world’s largest offshore wind farm developer, have also faced market adversities. Orsted A/S shares crashed due to warnings related to severe situations in US offshore wind projects, attributed to inflation, high interest rates, and supply chain woes.

In a rather grim portrayal of the sector’s health, the term ‘green panic’ has been coined, encapsulating the essence of the challenges faced by the renewable energy industry in the current macroeconomic environment. The article subtly underscores the gap between the ambitious green dreams and the harsh realities marked by financial and operational challenges.

In conclusion, the tale of Siemens Energy, as narrated by the article, serves as a mirror reflecting the turbulent waters navigated by the renewable energy sector. It brings to light the grim realities faced by the green energy companies as they collide with reality. The journey of Siemens Energy, marked by crashing shares and quality challenges, is emblematic of the broader struggles of the renewable industry in a world marked by economic uncertainties and operational challenges.

(Source: ZeroHedge)

Regulatory Rebuff Blow to Offshore Wind Projects

The state denial could force some developers whose contracts may not cover project costs to scrap plans to sell power to customers in New York, cancel or delay projects, as happened with a couple of offshore wind projects in Massachusetts

From Watts Up With That?

When the breezy dreams of offshore wind giants met the rocky shores of regulation.

In a move that left offshore wind giants like Orsted, Equinor, and BP staggering, New York’s utility regulator has blown away pleas for contract relief.

“Nearly all of New York’s pacesetting 4.3GW of contracted offshore wind capacity is now in limbo following rejection of developers’ pleas for inflation relief by the state’s utility regulator.”

https://www.rechargenews.com/wind/blow-to-orsted-equinor-and-bp-as-new-york-rejects-pleas-for-offshore-wind-contract-relief-leaving-4gw-in-limbo/2-1-1534223

Developers’ Substantial Requests Denied

The developers, caught in the turbulent winds of cost overruns, sought increases to offtake contracts by a staggering 55%. However, the PSC was not swayed by their arguments.

“New York Public Service Commission (PSC) denied petitions by the state’s two offshore wind developers, joint ventures (JVs) of Equinor-BP and Orsted-Eversource, for increases to offtake contracts as high as 55%, which one PSC member reportedly described as ‘breathtaking’.”

Ratepayer Impact: A Central Concern

The PSC stood its ground, prioritizing the interests of ratepayers over the inflation woes of developers. The commission emphasized that the proposed contract increases were not in line with its policy objectives.

“Regulator said cost hikes of up to 55% would have substantial ratepayer impacts and were ‘fundamentally inconsistent’ with commission policy.”

The Uncertain Path Ahead

The decision leaves a significant portion of New York’s offshore wind capacity in a state of uncertainty. The ambitious plans of these offshore developers now seem to be at the mercy of regulatory scrutiny and economic practicality. The future trajectory of these projects remains unclear amidst this regulatory challenge.

Conclusion: Navigating the Regulatory Landscape

The PSC’s decision underscores an interplay of economic considerations and, (finally!) some regulatory prudence in the renewable energy sector. Developers now, perhaps for the first time, face the task of advancing their projects amidst economic fluctuations, having to with regulatory expectations and safeguarding ratepayer interests. We’ll see how many walk away.

Source force this article: https://www.rechargenews.com/wind/blow-to-orsted-equinor-and-bp-as-new-york-rejects-pleas-for-offshore-wind-contract-relief-leaving-4gw-in-limbo/2-1-1534223

HT/david d for sending me official decision below.

Four NY offshore projects ask for almost 50% price rise

From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

We already know that some developers have pulled out of offshore wind projects off the US NE coast, as they are not viable.

Here is more news on developments off the New York coast:

The developers of four offshore wind farms in New York are seeking average price rises of almost 50% on their offtake agreements.

The New York State Energy Research and Development Authority (NYSERDA) calculated how the companies’ requested adjustment would impact strike prices, and found the average across all four was 48%.

The projects involved are Orsted and Eversource’s 924MW Sunrise Wind project, along with Equinor and bp’s 816MW Empire Wind 1, 1260MW Empire Wind 2 and 1230MW Beacon Wind.

Sunrise Wind previously agreed a price of $110.37 per MWh, and is now seeking a $139.99 price instead, a 27% increase, according to NYSERDA.

Empire Wind 1 requested increasing its strike price from $118.38 to $159.64, a 35% increase, while Empire Wind 2 asked for its $107.50 original price to be increased to $177.84, a 66% increase.

Meanwhile, Beacon Wind wants its $118.00 previously agreed price ramped up to $190.82, 62% more.

The three Equinor and bp projects combined have an average price rise of 55%.

The four projects are seeking a number of reliefs, including retroactively applying an inflation-adjustment mechanism similar to one included in New York’s recent third offshore wind solicitation, along with interconnection cost adjustments, though the exact specifications differ between the developers.

According to NYSERDA, including the inflation adjustment mechanism alone would raise prices for the four projects by an average of 31% (25% for Sunrise Wind and Empire Wind 1, 37% for Empire Wind 2 and Beacon Wind).

https://renews.biz/87865/four-ny-offshore-projects-ask-for-almost-50-price-rise/#:~:text=Orsted%2C%20Equinor%20ink%20New%20York%20offshore%20power%20pacts&text=The%20projects%20involved%20are%20Orsted,2%20and%201230MW%20Beacon%20Wind.

So we are looking at a range of prices demanded between $139 and $190/MWh.

In UK terms, that’s £114 to £155/MWh.

Do we need any further proof that offshore wind is not as cheap as made out?

Danish Wind Energy Giant Crashes 25% in One Day, Blames “Severe” US Market

From Watts Up With That?

Essay by Eric Worrall

h/t energywise – “… in talks with federal stakeholders to qualify for additional tax credits, which haven’t progressed as expected. …”

World’s Largest Offshore Wind Farm-Maker Crashes Most On Record After Catastrophic Results

BY TYLER DURDEN
THURSDAY, AUG 31, 2023 – 01:05 AM

Orsted A/S was hit with a massive 16 billion Danish kroner ($2.3 billion) impairment on its US portfolio due to snarled supply chains, soaring interest rates, and easy money tax credits drying up — a warning sign the green energy revolution bubble is in trouble. 

CEO Mads Nipper warned investors on a conference call: “The situation in US offshore wind is severe.” 

Bloomberg explained more about the headwinds plaguing Orsted: 

The company’s Ocean Wind 1, Sunrise Wind, and Revolution Wind projects in the US are being hurt by supplier delays, which could lead to writedowns of up to 5 billion kroner, it said late Tuesday. High interest rates could also add another 5 billion. In addition, the developer is still in talks with federal stakeholders to qualify for additional tax credits, which haven’t progressed as expected. If unsuccessful, it could lead to impairments of as much as 6 billion kroner.

Analysts at Bernstein warned clients in a note: “Today’s announcement flags risks in the US portfolio and does not do anything to improve the downbeat investor sentiment on the stock.” 

Read more: https://www.zerohedge.com/markets/worlds-largest-offshore-wind-farm-maker-crashes-most-record-after-catastrophic-results

One interesting aspect of this situation, is it highlights how vulnerable the renewables industry is to changes in the political landscape, even when they haven’t happened yet.

WUWT focusses a lot on the Biden administration’s apparent reluctance to conduct oil lease sales, allegedly hostile EPA oversight, and other apparent attacks on the fossil fuel industry. But equally, renewable investors and operators are suffering night terrors over the possibility a future conservative president might completely cancel their subsidy life support, at least at a federal level.

Let us hope the green industry’s worst fears are realised.

Another fairy tale about the levelised cost of renewables

From Net Zero Watch

By Andrew Montford

I recently described UK government’s latest estimates of levelised cost of renewables as “a fairy-tale”. Well, if Whitehall’s effort was Rumpelstiltskin, then the equivalent document from the International Renewable Energy Agency (IRENA), which appeared yesterday, is Jack and the Beanstalk.

Take the operational costs of windfarms, for example. IRENA claims that it’s difficult get hold of hard data on the subject. This is, not to put too fine a point on it, absolute nonsense. Guys, allow me to introduce you to Companies House, where you will find the audited financial accounts for every UK offshore windfarm and at least half of the onshore ones. Hard data, freely available to download!

For offshore wind, having conveniently overlooked the hard data for another year, IRENA appear to be relying on a 2018 modelling study from the US and a remark in an investor presentation from Orsted (science!). They conclude that opex is in the range £50-100,000 per megawatt of capacity per year.

Figure 1 shows what they might have concluded, had they stumbled upon the cornucopia of data at Companies House.

The data is divided into cohorts depending on the water depth of the windfarm in question. IRENA does not even allude to opex costs increasing over windfarm lifetimes – a trend that is clear in the data. But whichever way you look at it, their values are around half of anything credible.

It’s a similar story on capacity factors. Figure 2 is IRENA’s graph:

Figure 2: IRENA’s capacity factor graph

A few recent UK offshore windfarms have averaged 46% capacity factor over their first few years, but there is a trend to declining output as time passes. This is clear in Figure 3, which again divides the fleet into cohorts, but this time by size of turbine.

Figure 3: UK offshore wind capacity factors

IRENA doesn’t allude this issue, so they appear to be assuming no decline in output over windfarm lifetimes, just as our Whitehall bureaucrats did. As a result, when they look at the effect of opex on overall costs, they conclude that ‘O&M costs per kWh have therefore been falling’, and suggesting that a figure of perhaps £13/MWh ($0.17/kwh) might be expected for European windfarms commissioned in the last five years.

Again, let’s see what effect using some real data has on that value, rather than basing it on throwaway remarks in an industry presentation. I’m not sure I detect anything resembling a decline, let alone anything resembling £13/MWh. It looks as though IRENA’s figures are out by a factor of three.

Figure 4: UK offshore wind – opex element of LCOE

Magic beans are probably the only way we are ever going to see costs this low.

The Elephant in the Room

From Climate Scepticism

By MARK HODGSON

It’s net zero

Today’s Guardian online includes an interview with Jonathan Brearley, the Chief Executive of Ofgem, a position he has held for just over three and a half years. Ofgem, by the way, is an acronym which stands for the Office of Gas and Electricity Markets. It sits in a pivotal position, given its role (in words I take from its website to “work to protect energy consumers, especially vulnerable people, by ensuring they are treated fairly and benefit from a cleaner, greener environment.” More specifically, Ofgem says:

We are responsible for:

working with government, industry and consumer groups to deliver a net-zero economy, at the lowest cost to consumers

stamping out sharp and bad practice, ensuring fair treatment for all consumers, especially the vulnerable

enabling competition and innovation, which drives down prices and results in new products and services for consumers.

And how exactly is all that going? According to the Guardian (and for once I agree with them), it probably could be going better (much better):

In the past two years, wholesale market prices reached record highs, pushing up the number of households living in fuel poverty to almost 7.5m and causing the collapse of almost 30 energy suppliers. The crisis triggered one of the biggest government bailouts since the financial crisis as ministers handed £78bn to households to help pay their bills…

…Today, millions more households are in fuel poverty, vulnerable bill payers have been forced on to prepayment meters, small businesses have fallen prey to predatory energy brokers, and Britain’s creaking electricity grids face decade-long queues of renewable energy projects waiting to connect to the power system.

Britain’s power grids, which are regulated by Ofgem, have warned renewable energy developers to expect a 10-to-15-year wait to connect their projects to the network.

So it’s not going terribly well. The big question, it seems to me, is what is the cause of this catalogue of failure? Sadly, the Guardian interview doesn’t even scratch the surface. The closest it gets to analysing what has gone wrong is talking about the problems Mr Brearley has had to face since taking up his post:

Since then, the industry has been roiled by the impact of the Covid pandemic and the energy market aftershock following Russia’s invasion of Ukraine.

I don’t deny that both of those hugely problematic events have played their part in causing problems for UK energy suppliers and consumers, but no reasonable analysis could attribute all of the issues identified by the Guardian to those two events alone. If the Guardian isn’t up for a detailed dig into the problems and what caused them, presumably Mr Brearley is, given that on any reasonable definition, it’s his job to do so. And indeed he is. His speech at the Institute for Government on 24th January 2023 arguably painted an even bleaker picture than the Guardian:

I think we should acknowledge how difficult it is for many, many households and businesses, to pay for the energy they need.

Our data shows that, from April, households on a median disposable income will spend 10% of that on their energy bills, and those relying on the state pension will spend 29% – that is a truly extraordinary amount of our household budgets.

I speak to customers regularly, and even with the Energy Price Guarantee and Energy Bills Discount Scheme, I know that the scale of the challenge for many people out there remains enormous.

For example, a few months ago I spoke to a lady who has a chronic condition. That condition often leaves her in pain if it is cold, yet she often has to rely on a hot drink or a blanket because she cannot afford to heat even one room.

I have also spoken to people who prefer to be in hospital rather than at home, because it least in hospital they know they have access to the energy and the food that they need.

We also consult regularly with business member groups to hear about the challenges they face.

For example, recently we heard from a group of theatres whose long-stand utility contract ended last October. Their new forecast, before government support, was of a roughly 450% rise in their electricity bill and rise 725% for their gas bill. And when they tried to find alternative quotes, it was difficult to do so for a whole range of issues, including a very different perception of credit risk.

Now sadly, these stories are all too common across Britain today.

Welcome to Britain in 2023. Fortunately Mr Brearley understands his responsibilities very well:

So as the energy regulator, alongside government, and the industry, it is our responsibility to [be] doing everything we can to support consumers and businesses through this very difficult period.

And he has a plan! Unfortunately, he seems to be fully signed up to the net zero agenda, which I suppose isn’t surprising, given his CV:

…he was Director of the Office of Climate Change, a cross-government strategy unit focussed on climate change and energy issues, where he led the development of the Climate Change Act…

I don’t deny Mr Brearley’s qualifications for the job (e.g. he “ led Electricity Market Reform as the Director for Energy Markets and Networks at DECC”) but the fact that the Chief Executive of Ofgem seems to be a net zero enthusiast is as disappointing as it is inevitable. He probably wouldn’t have got the job otherwise.

And so I suppose it is equally inevitable that the first lesson he says he has learned from the “crisis” is that we as a country are most disadvantaged by “reliance on international gas markets that, bluntly, have been manipulated by an aggressive state” with the result “that geopolitics is playing a stronger hand in this country’s energy decisions than we had planned for, or would like it to.” The solution?

…we should move as rapidly as possible away from a system highly dependent on international gas, but also move away from our current market, which means that gas affects almost all of our energy use.

Simply put, we need to transition towards more homegrown, secure, and renewable sources of energy supply, and design an electricity market that allows us to benefit from that transition.

The difficulty with that, as the more alert among you will have noticed, is that the concluding paragraph is oxymoronic. It is simply impossible to achieve all the things that are summed up in one short sentence – homegrown energy, which is also secure and more renewable, and allows us to benefit from that change. The thing is that that renewable energy, by its very nature is unpredictable and unreliable, and leads to shortfalls in energy supply, often when demand is at its greatest, i.e. in the middle of winter, when the sun barely makes it over the horizon and the country can be becalmed in bitterly cold conditions under an anticyclone. What do we do then?

Well, we can do what we do now, and rely on gas generators to ramp up at short notice to fill the void. But that involves running two energy systems in parallel, with the more reliable of the two (gas) being operated sub-optimally, and therefore very much more expensively. That might give us security (or it would if we were allowed to extract our own gas), but it wouldn’t offer any financial benefit at all – quite the contrary.

Or we could trust to good neighbours and assume that the ever-growing web of interconnectors will fill the void. The problem with such a policy, however, is that it depends on the anticyclone over the UK not also sitting over western Europe, so that there is actually some surplus electricity for us to draw down, It also depends on our neighbours being good neighbours and not seeking to rip us off financially when we’ve got ourselves into a bit of an energy shortfall. And finally, it is at risk of an “aggressive state” seeking to damage the interconnectors (as, indeed, they might seek to damage the power cables bringing the offshore wind power onshore). This is also an expensive option and, worse still, it is doesn’t meet the need for secure energy supplies.

And it keeps getting worse. Further on in his speech Mr Brearley lays out quite clearly (let nobody say they didn’t understand what the implications are) the extent of the engineering challenge (though he barely mentions the associated costs) involved in achieving this undesirable and dangerous energy policy. We’ve heard it all before, of course, but it bears repeating, since some people (who should know better) seem remarkably insouciant as to what’s involved.

To move away from our dependence on the international gas market and build the secure, decarbonised energy system that we need as rapidly as possible, and to meet the government’s target to achieve a net zero power system by 2035 and reach net zero by 2050, we will need to build new energy infrastructure at a pace not seen for decades.

When you look at our history, the period immediately after the Second World War most closely resembles the pace and scale at which we will need to build.

From 1950 to 1970, Great Britain’s electricity generation capacity expanded around 4 fold.

Since then, the system has been largely stable in terms of our networks, and regulation has been designed to maintain that system and drive efficiency in its maintenance and in the incremental build that has been needed.

But to meet the scale of future energy demand between now and 2050, we will again need to build out our infrastructure – onshore, offshore, and connections to other countries – at an extraordinary pace, not seen for over half a century.

Instead of pausing there, and asking whether this really is such a good idea he goes on to repeat the mantra of the Skidmore review to the effect that this, as well as being a huge challenge (too right it is) is also “an economic opportunity”. He goes on also to repeat the claim regularly made in this regard that it will cost us more if we delay. This is a claim I’ve heard many times, though nobody has ever explained it to my satisfaction – indeed, often (as here) the claim is simply made without explanation. I assume that the “logic” is that we need to do this because if we don’t the costs of climate change will be much greater. Of course, if that is what underpins the claim, then it is utterly fatuous, since even if the UK achieves net zero it will make no measurable difference to the climate unless the rest of the world follows us off the cliff.

And how is this acceleration to be achieved? Well, making it easier for planning consents to be obtained more quickly (presumably even in the teeth of local opposition) is certainly a key part of the plan:

The next generation of system planning will need to look at net zero targets for 2035 and 2050 more widely, and encompass investment across the electricity and gas grids, including the planning for hydrogen infrastructure…

…So we are reviewing the institutional framework to set a clear vision for local governance arrangements…

The link between the price of gas and electricity pricing is also made: “the gas price crisis revealed that in the short term, consumers may not be getting the full benefit of the existing renewable and low carbon plant.” [sic] Mr Brearley is under the impression that moving “all renewable plant on to the existing contracts for difference regime… would stop this happening and give consumers access to lower electricity prices.”

As he points out, Mr Brearley led the Electricity Market Reform, so he certainly know more about this sort of thing than I do. I trust, therefore, that he is aware that the Contracts for Difference regime isn’t going so well just now, and that in the fifth Allocation Round the government has just increased the budget, and that renewables energy companies have taken to postponing their take-up of existing “contracts” because they don’t regard them as viable:

Orsted has delayed for a second year its contract to supply consumers with cheap energy from the world’s biggest offshore wind farm and has warned that it could do so again, enabling it to cash in on higher market prices instead.

Hornsea Two, comprising 165 turbines about 55 miles off the coast of Yorkshire, has been fully operational since last summer, generating enough electricity to power 1.4 million homes.

Under a government contract awarded in 2017, Orsted was due to supply the power to energy bill-payers at a fixed inflation-linked price worth just under £84 per megawatt-hour today, with the contract for the first phase of the project due to begin in 2022. However, the Danish state-backed power group confirmed last week that it has now taken advantage of a loophole to delay that contract start date for a second year, until 2024, enabling it to sell the power for higher prices instead…

I find it worrying that the conclusion arrived at is this:

In conclusion, the gas crisis has strengthened the need for pace in changing our energy system to meet customer needs and to meet our low carbon goals….we will have a robust path to a better, more secure and low carbon energy system that meets this country’s needs.

The elephant in the room, of course, is net zero, and the obsession with “de-carbonising” the UK’s electricity generation. I have seen no plan for reducing reliance on gas back-up, and thus for reducing, rather than increasing, costs. I have seen no persuasive plan for guaranteeing that the country won’t face blackouts if it makes itself reliant on unreliable and unpredictable sources of electricity generation. I see no convincing plan as to how we will cope if the interconnectors between the UK and Europe are cut, or if the cables bringing electricity from Scottish islands and offshore wind farms to the mainland are cut. While the move away from gas may be justified because buying gas on the international market makes us vulnerable to bad actors, not much thought seems to have been given the extent of our vulnerability when relying on undersea cables and interconnectors.

In fairness to Mr Brearley, who can’t be held responsible for the mess that Ofgem has made over the years, and in fairness to Ofgem itself, it is faced with a regulatory framework imposed on it by Parliament which is full of contradictions and makes little sense. Ofgem is governed by the Gas and Electricity Markets Authority, which derives its powers and obligations from a plethora of statutes, such as the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002 and various Energy Acts. A useful summary can be found here though I cannot be certain that it is completely up to date.

What, for instance, is to be made, of section 4AA sub-section 1(a) of the Gas Act 1986 (as amended by the Energy Act 2010)? It obliges Ofgem both to protect the interests of existing and future customers by reducing gas-supply emissions of targeted greenhouse gases (as defined in the Climate Change Act 2008) and in the security of the supply of gas to them. Similar provisions apply (mutatis mutandis) with regard to the supply of electricity under section 3A of the Electricity Act 1989 (as also amended by the Energy Act 2010).

How about subsection 2 of the Gas Act 1986? Ofgem has to have regard to “the need to secure that, so far as it is economical to meet them, all reasonable demands in Great Britain for gas conveyed through pipes are met” and the need to contribute to the achievement of sustainable development”. And all the while, subsection 5 requires them to carry out their functions in the manner which it considers best calculated “to secure a diverse and viable long-term energy supply”. Again, similar provisions apply under the Electricity Act (as amended), including that critical obligation “to secure a diverse and viable long-term energy supply”.

If there was no legal obligation to achieve net zero and no expedited plans to “decarbonise” the electricity generation system in accordance with carbon budgets, then Ofgem’s job, and that of the National Grid and wholesale energy suppliers and retailers would be massively simplified and cheapened. If I were in charge of Ofgem and/or the National Grid, that is a message I would be delivering repeatedly and urgently to Parliament. Unfortunately, as things stand, politicians and those charged with implementing their madcap plans seem to be holding hands while the elephant in the room remains invisible.