The Government has today announced the results of the fifth auction of Contracts for Difference subsidies for renewable electricity generation. Its has been a failure, and may represent a landmark moment for renewables policy.
Only 3.7GW of new capacity has bid successfully, mostly through small projects, as compared to nearly 12GW last year. There were no bids for offshore wind, the UK’s flagship renewable generator.
Participants in the auction bid for guaranteed prices, below a cap set by ministers in advance of the auction. The cap for offshore wind was set at £44/MWh (in 2012 prices, equivalent to around £70/MWh today). This is higher than successful bids in the past, yet no wind farm developers felt able to bid at this price. Wind industry claims that this is due to rising prices are implausible – CfD contracts are index-linked.
While offshore wind’s failure to bid may be surprising to some, perhaps even to the Government, it will come as no shock to those familiar with the long-term capital and operating cost trends for wind power, as revealed in audited financial statements. UK offshore wind costs have not been falling dramatically as the industry claimed. All around the world the wind industry is in trouble for the same reasons; costs remain high, and high levels of subsidy are needed to reward investors.
In addition, the latest auction round closes down the loophole that allowed windfarms to reap huge windfall profits by failing to activate their contracts so that they could benefit from higher prices in the open market.
The fact is that wind power, wherever, is an expensive way of generating energy. That isn’t surprising either; wind is a physically low-quality fuel and the cost of turning it into electricity is intrinsically high.
The previously successful low bids for offshore wind were unrealistic, a point we made at the time. Even when built, wind farms delayed taking up their contracts so they could operate on a merchant basis, taking advantage of temporarily high wholesale prices.
Importantly, the cap for onshore wind bids in this round of the CFD auction was higher than that for offshore, at £53/MWh (2012 prices). There were a substantial number of successful bids at this price, though they are all located in Scotland, where land rents are lower and where the developers can expect to make extra income through the infamous “constraint payments”, where a wind farm is paid to reduce output. (Demand in Scotland is low and the grid links to England are congested, limiting exports.) Even so, we doubt that these successful onshore bids are strongly economic.
Andrew Montford, director of Net Zero Watch, said:
Government seems to have believed the spin about falling offshore wind costs, and set a low cap on bids for new contracts, thus calling the wind industry’s bluff by accident. Doubtless, the industry will now beg for new and higher subsidies, blaming inflation and supply chain problems. Government should not believe this spin. As global experience shows, wind power is extremely and intrinsically expensive.”
Dr John Constable, energy editor of Net Zero Watch, said:
The CfD auction results are symptomatic of a wider failure of wind power around the world. The industry is in a crisis from which it is unlikely to recover, because its costs are simply too high to be sustainable. The time has come for Government to admit that renewables have failed, and to start looking at realistic energy policies.
Notes for editors
The high costs of offshore wind power have been noted in a series of studies.
- Hughes, Constable and Aris, for GWPF
- Andrew Montford, for GWPF
- Professor Gordon Hughes, for the Renewable Energy Foundation.
- Dr John Aldersey-Williams et al, in the journal Energy Policy
Net Zero Watch has published a paper outlining a more realistic gas-to-nuclear alternative to the current Net Zero agenda.
John Constable & Capell Aris: A workable alternative to Net Zero. A plan for cleaner, reliable and affordable energy (pdf)