Why there shouldn’t be more subsidies

Please note below are the notes Linda Holt used for her interview with BBC Scotland today. It will be used in an upcoming feature on Scottish Power who are working their socks off erecting turbines to grab as much ROC subsidy as possible before the March 2017 cut-off date, and who want to make the case, backed by Scottish Renewables of course, that the industry needs continuing subsidy in one form or another.

Why there shouldn’t be more subsidies

The simple answer is that we can’t afford them. The UK government cut subsidies for new schemes because it was going to blow its own budget under the Levy Control Framework 1. In the end the cost of subsidies to the wind sector is paid for by all of us on our electricity bills which people are already struggling with. We’ve spent £9 billion since 2002 subsidising the wind industry 2.

The Government has to balance the interests of onshore wind developers with those of the wider public.

Wind power may be the cheapest form of power to produce for the producer – because he gets subsidies – but it’s by far from the cheapest for the consumer who pays for the subsidies plus the additional costs of transmission and back-up.

The wind industry likes to say that the cost of producing wind energy is falling – that’s true for the generator – but the fall in cost is not being passed on to consumers, who just see their bills increasing as more subsidized wind comes on line.

A comparison of the costs of several forms of generation in the UK puts the average cost of new gas generation at £68/MWh and onshore wind at £190/MWh when backup and infrastructure costs are included. With the current ROC subsidy of £45/MWh, the price to the consumer will be greater still 3.

These costs – generation, transmission and subsidies – make up about three quarters of domestic electricity bills. Thus when all consumer-borne costs are taken into account the cheapest wind generated electricity is likely to be costing consumers about three times as much as electricity generated from gas. This puts even the guaranteed strike price of £92/MWh for Hinkley C, which being both controllable and on an existing site will incur few of the additional costs, into perspective4.

A cheap bid price does not mean cheap electricity for consumers because of additional costs due to transmission and back up. Significant amounts of wind energy in the energy mix distort the market.

Of course developers in Scotland like Scottish Power – which incidentally isn’t Scottish but Spanish – are feeling more pain from the subsidy cut than developers in England because Scotland has had a – and is still receiving – a disproportionate amount of subsidy. Only 8% of the UK population lives in Scotland, but it received 24% of the Renewable Obligation payments in 2014/15 5. In the last Contracts for Difference round, Scottish projects won 11 of the 25 contracts awarded6.

I think the UK and Scottish Governments agree that affordability is the key to decarbonisation – both have an overriding duty to ensure value for money for consumers. Now renewable energy costs have been falling across the board and onshore wind is a mature technology which is reaching the point where it can be deployed without subsidy. Of course that means the industry can’t just stick the odd turbine anywhere and expect to turn a profit, as they could in the past – it means they have to select sites with good wind resource and infrastructure, and look at economies of scale, but there’s plenty of evidence to suggest developers are doing just that.

No market stays static, and just because wind developers have had the most luxurious insulation against the ups and downs of the energy market in the past doesn’t mean they can expect consumers to featherbed them forever. The only justification of subsidies is to get new industries off the ground until they can stand on their own two feet and we’ve done that with onshore wind.

It’s now time that subsidy money stopped going into the pockets of shareholders outside Scotland and went into R & D on other renewable technologies like wave and tidal which have huge potential in Scotland. And this is what the UK Gov is doing in that it’s announced three more competitive CFD auctions this Parliament for less established technologies. The three auctions will offer up to £730 million of annual support over 15 years7.

Did the industry know? Well, this wasn’t some coup d’etat. There was an Energy Bill which was properly consulted on – in fact because of stakeholder engagement longer grace periods were introduced – , debated etc and the Conservatives had cutting onshore wind subsidy in their manifesto. It had been on the cards for years before that because we were reaching capacity with onshore wind – in terms of targets (15% renewable electricity by 2020), cost (Levy Control Framework) and the potential for decarbonisation within the electricity mix – but of course nobody thought the Conservatives were going to win the 2015 general election. That was the real shock for the industry.

UK Gov: “The deployment of renewables in Scotland continues to rise, driven by the support received as a result of UK government policies. According to BEIS’ latest quarterly energy trends, set out in the chart below, total deployment of renewables in Scotland stood at over 7.7GW in 2015, a rise of six per cent on 2014 and of 57% compared with 2008. Scotland’s total renewable electricity capacity accounts for around a quarter of total UK capacity in 2015 (30.5GW).

Looking forward, we expect significant further deployment in Scotland over the coming years. The majority of onshore wind projects that qualified for the Renewables Obligation early closure grace period are expected be in Scotland, as are 10 of the 15 onshore wind projects that were successfully allocated a CFD. The 588MW Beatrice offshore wind project in the Outer Moray Firth will begin offshore construction in 2017 and the 92.4MW European Offshore Wind Deployment Centre off Aberdeenshire is expected to be operational in 2018. There is also a significant pipeline of projects—including 1,116MW of offshore wind—which have planning consent and can deploy subject to their success in any future CFD auction.” 8

A market stabilization CFD is a subsidy by another name, and although the UK gov is considering this, it will cost money, we don’t need more onshore wind and very many people – especially Conservative voters but not only – don’t want more onshore turbines. So I think it unlikely the industry will get this.

Around 60% of the UK’s onshore wind capacity is located in Scotland, and there are over 15 GW of renewable projects currently contracted with National Grid to connect in Scotland within the next decade. This shows that transmission charges are not deterring renewable generators from connecting in Scotland9.

“It should be noted that energy policy, including support for low carbon technologies and CCS, is a reserved matter and the responsibility of the UK Government. “The Government strongly believes that maintaining a fully integrated single energy market for Great Britain benefits all consumers in England, Wales and Scotland In particular it ensures continuing security of supply and promoting competition in generation”10.

Constraint payments: necessary to balance grid so National Grid pays wind farms to switch off when windy. In 2015 £90 million was paid by consumers to w/farms to switch off – transferred from the pockets of the poor to the pockets of the rich in order to sustain an unsustainable electricity production mirage11.

The more turbines we put up, the more we have to constrain.

References

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