From Climate Scepticism

BY MARK HODGSON

Is the sun setting on wind energy?

Quite by chance I caught a revealing interview on BBC Radio 4’s PM programme earlier today. I set out a transcript below. Unfortunately the interviewee, Rod Wood, the MD of Community Wind Power, seemed to be on a mobile telephone and I struggled to catch every word clearly.

ED: Now, a green light for an offshore oil and gas development today, but it comes at the time we have another very significant energy story unfolding. Red lights flashing over wind energy projects in the UK. There are now several signs of problems. One, a Swedish developer, Vattenfall, put the breaks on a development in the North Sea in July, saying it was no longer viable. Two, the latest auction for contracts for state support for clean energy flopped. There were no bids from offshore wind developers. And then three, yesterday, one of our biggest onshore wind developers said it’s halting development of Sanquhar II in Dumfries & Galloway. Community Wind Power say the project would have powered 350,000 homes. Rod Wood is the company’s managing director. I asked why he’s now choosing not to invest in onshore wind, which we’re told is the cheapest and easiest form of green electricity.

RW: You’re right, onshore wind has been the cheapest, and I think will continue to be cheap alongside solar in the UK. The difficulty that we all know of late is the last few [two?] years is we have a huge increase in capital costs, we’ve seen inflation, obviously rampant inflation, and we’ve seen with turbines that the costs have increased over 60, 60+%. We’ve also seen a massive increase in financing costs, where mortgage increases, so financing costs for wind farms long-term for infrastructure, fifteen years, has increased from below 2% up to nearly 8%, so a four-fold increase there. We have a weak pound as well. All those things factored in together have signficantly increased our costs and we estimate them now to be around £80, just over £80 per megawatt hour, which is substantially more than they were, and of course the Government, as you’ll be aware, with this windfall tax they’ve introduced has determined somehow that anything over £75 is an extraordinary, er extraordinary price. So we have the sales tax applicable from £75, so actually they’re taxing £5 of cost.

ED: So, just tell me whether the economics of onshore wind, or wind in general, has been fundamentally transformed by the things you’ve described. We’re talking 8 pence per kilowatt hour, in human terms. The price at the moment – I don’t know what I’m paying, probably 30p or something per kilowatt hour? I mean, it should be surely possible to make money where we are.

RW: Well we don’t, unfortunately, sell you the electricity ourselves. We’re a generator, so we sell to the utilities and to corporate PPAs. So that’s where…there’s a differential obviously. There’s a cost in transferring the power from site in to your house, and that’s a big difference, obviously, and different companies evolve [?] that. From our perspective, clearly, Evan, the situation is the costs have increased. All costs…supermarket costs, everything has increased significantly.

ED: I want to just ask you about your view of whether the Government is interested in wind. This is the third blow – pardon the pun – to wind power. We’ve had Vattenfall abandoning one project they were going to invest in; we’ve had an auction for off-shore licences which didn’t get any takers; and I just wonder whether you’re worried that there isn’t the commitment to wind that we have had in the past?

RW: I think I agree with you. Positionally, they’ve already pinpointed renewables, wind and solar particularly. We have the windfall tax. If we were generating electricity from gas or from diesel generators, there’d be no windfall tax. So why are they attacking us when they should be looking at the wider community of generators in the UK? That’s the big issue, and why are they giving us a five year tax, when actually in Ireland or the EU the tax is finishing at the end of this year. Green electricity is the backbone and the foundation for new industries, data centres, AI, blockchain, pharma.

ED: I mean, it is very interesting. This obviously came in, this announcement comes in the week that we have a new licence for offshore drilling for oil and gas.

RW: Yeah, reading the press release, it’s quite interesting that they now talk about Net Zero and taking, looking at it in a pragmatic and proportionate, realistic response. I’m not quite sure what that means exactly. But I don’t think the climate will be looking at the UK in the future in that way, as sea levels rise and London, you know, and other coastal cities start to submerge. This is going to be the fourth, or was going to be the fourth largest wind farm in the UK, with 380 Megawatts in addition to the 30 that’s already there. We can’t make it work, so how can others?

ED: Have you actually, perchance, had conversations with the Opposition, the Labour Party, about whether they would be inclined to make the environment more friendly to your investments?

RW: We haven’t as yet, no. We’d certainly like to. We’d like to engage with them and other parties and explore, and explain how actually this industry can support all these other industries going forward. There’s massive opportunity there. John Coldwell … on the programme the other day, you know, let’s encourage green new companies, investments, coming in to this country and we can be great again, you know, with lower corporation tax rates as in Ireland, and actually drive the growth of the economy forward. But we need modern thinking, as they’re doing in the US and the EU and other places, and hopefully Labour will be considering that.

ED: Rod Wood there, who’s the Managing Director of Community Wind Power, pulling back on a scheme in the south of Scotland.

Conclusion

It was interesting to hear Evan Davis describe onshore wind only as the cheapest form of green electricity, and Mr Wood, after agreeing that it had been, going on to say (if I heard him correctly) that he thinks onshore wind will continue to be cheap (but he seemed to drop the claim going forward that it will be the cheapest). Indeed, it would be difficult for him to maintain the claim, given that he then launched into a long spiel about all the costs now hitting onshore wind energy.

He spent a long time bemoaning the windfall tax – on anything above £75 per megawatt hour. He seemed particularly aggrieved about this, despite the fact that this is at a level significantly higher than the price of recent CfD rounds (admittedly those contracts haven’t been taken up) that was used in some quarters to claim that wind energy was “nine times cheaper” than fossil fuels. He also suggested that if his company generated electricity using diesel or gas, then no windfall tax would apply. I would suggest that either he or the BBC is mistaken, for less than two months ago the BBC’s website featured an article about the windfall tax, more properly called the energy profits levy (or EPL) with the heading “What is the windfall tax on oil and gas companies and how much do they pay?” It stated that:

In the first six months of 2023, BP paid $970m (£755m) of tax in the UK – with about $460m (£358m) due to the EPL.

Shell initially said it did not expect to pay any windfall tax for 2022, as its North Sea investments meant it was not considered to have made any UK profits.

But on 2 February it announced that it would pay $134m (£108m) for 2022, and expected to pay more than $500m (£400m) for 2023.

Centrica said it was paying about £1bn in tax from its £3.3bn 2022 profits, which includes about £54m under the levy.

Much of the rest of the interview seemed to bemoan the return of long-term interest rates to what are historically normal levels, and that in turn carries the suggestion that renewable energy has only made the headway that it has thanks to unsustainably low interest rates over a remarkably long period of time.

The interview wound up with a reference to alarmism (apparently London and other UK coastal cities will be underwater if windfarm projects don’t proceed) and an implicit plea for subsidies (euphemistically described as “modern thinking, as they’re doing in the US and the EU and other places”) and preferential tax treatment (“let’s encourage green new companies, investments, coming in to this country and we can be great again, you know, with lower corporation tax rates as in Ireland”).

It all rang rather hollow, and one sentence (“We can’t make it work, so how can others?”) for me blew out of the water the claims that are constantly being made on behalf of wind energy. It looks as though Net Zero could be unravelling before our eyes.