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The dodgy numbers behind Labour’s energy policy

Andrew Montford, Net Zero Watch

At its recent party conference, Labour announced its plans for a renewed drive for renewable energy, stating in justification that wind power is now “nine times cheaper” than gas-fired. This claim has been repeated by a number of its MPs in recent days, as well as by the Unite union’s Howard Beckett.

Unfortunately, it’s not even remotely true. Let me explain.

The claim has its origins in a blog post from the Carbon Brief. It is, to put it politely, an interesting offering. For a start, the figure quoted for gas-fired power – £446 per megawatt hour – appears to be the average market price for electricity in Week 35. Using overall market prices to represent gas-fired power prices is fine, because the former tracks the latter very closely. The problem is that in their haste, Carbon Brief seems to have taken the market price in Euros rather than Sterling, so they are wrong by 15% before they even get going. The correct value is £381.

But why would anyone think that Week 35 was representative anyway? A cursory glance at the data would show that it is not. The average price for the year to date is far lower, and before the energy price crisis it was as low as £40 or so. On that basis – and a long-term figure is surely more meaningful than one distorted by the Ukraine war if you are making plans for the electricity system  – gas is cheaper than the £48 per megawatt hour Carbon Brief quotes for wind power.

However, the latter figure is, if anything, even more dubious. There’s a story here. Back in 2017, it was announced that the renewable power auctions had resulted in several successful bids to supply power at £57 per megawatt hour. Renewables advocates heralded what they called a revolution in windfarm costs, and an a credulous (or perhaps culpable) media lapped it up. Five years on, the windfarms involved are all operational, but, thanks to a loophole, they have refused to take up their “contracts” at £57, and are merrily selling power into the open market at anything from £200 to £600 instead. The cost to the consumer is running into billions every year.

Then, last year, the latest renewables auction closed out at just £48, and it is this that is the source for Carbon Brief’s claim. But why should anyone think that these prices will be realised in practice, any more than the 2017 ones were? If market prices are higher when the windfarms come on stream, the directors will be in breach of their fiduciary duty to shareholders if they accept the lower price!

In fact, we know that the costs of windfarms, both offshore and onshore, remain extraordinarily high, because we can see the unexpurgated facts in their audited financial accounts. Onshore wind is more than twice the long-term cost of gas-fired power and the cost is going up. Offshore is between three and four times as expensive, and is at best only coming down slightly. There can be no doubt about the facts here: these figures are based on hard data, and the results have been widely reproduced, including in the peer-reviewed literature. We can even look at announcements about the (allegedly) even cheaper windfarms coming on stream in 2026, and see that it is simply impossible for them to be profitable at £44 per megawatt hour; the capital cost alone will be higher than that.

It’s interesting to consider why windfarms bid so low when their costs are demonstrably higher. It seems most likely that they were pretty sure that market prices for electricity would go through the roof, as campaigns to deter investment in the fossil fuel industry, cancel insurance of its activities, and generally regulate it into oblivion did their work. In other words, operators gambled on higher prices and won – big time. However, we now know that it was not as big a gamble as it seems. I have recently revealed that windfarms are essentially able to charge consumers twice for the same electricity, so if market prices failed to rise, they had a hidden income stream to help make ends meet.

For Sir Keir Starmer and Ed Miliband to base their energy policy platform around claims made in a pressure group’s blog post smacks of a lack of seriousness that is deeply concerning, given that Labour has a good chance of forming the next government. Taking the claims of the environmental lobby at face value has helped get us into the energy crisis that we are facing today, and if we are to fix things politicians are going to have to get much more serious. Asking a few questions would be good start. Doing so would confirm that there is now unequivocal evidence – hard evidence – that wind power is uneconomic, and that it only survives because the system has been set up to allow its operators to rip off consumers. With an energy crisis now upon us, it’s vital that the political classes call a halt.