On 23/05/20 , I wrote to the Secretary of State, Alok Sharma.
These were some of the points I put to him:
- The views of the public should be considered by BEIS and LCCC as key stakeholders funding the Contracts for Difference (CfD) subsidies to Renewable Generators.
- For on shore windfarms 246MW is scheduled to go on line this year, increasing toward 800MW by 2022 – projects which are progressing without subsidy.
- 96% of UK electricity production occurs without providing a guaranteed subsidy to Generators.
- There is no justification in increasing costs to consumers by supporting a publicly funded CfD scheme, awarded to a mature ‘green’ industry which causes environmental damage and which last year alone, cost electricity consumers nearly a billion pounds. (For comparison, it costs approximately £90 million to build a 200 bed hospital)
- I pointed out that the CfD scheme was devised to ‘Minimise costs to consumers’, but that it has had the opposite effect. Whilst wholesale electricity prices have fallen since 2008, household electricity bills are at an all time high, having doubled since 2008.
- The Low Carbon Contracts Company (LCCC), ‘owned’ by the Secretary of State, exists to manage the CfDs. It is paid for entirely by electricity consumers. Last year this organisation cost us £12.3 million (set to rise next year as an increased levy on electricity bills).
- The valid concerns of host communities regarding impacts of on shore windfarms have been ignored. In England, local communities have a planning veto on such developments; in Scotland communities have no such rights. Local community support should be a requirement for the award of a CfD as this would encourage meaningful engagement of developers with host communities.
I received a reply from BEIS on 12/06/20.
None of the figures I presented were refuted by BEIS. However, despite evidence to the contrary, BEIS still tried to make assertions that the CfD scheme was good for consumers – or at least, it would be in the future! (The CfD scheme has been in existence since 2014 – without any evidence of consumer benefit to date)
BEIS refuted that costs to consumers would continue to rise because of the competitive nature of granting a cost effective CfD in future. They ignored the escalating costs of funding for the LCCC.
On a more positive note, BEIS appear to consider that there is a need for the renewable industry to engage effectively with local communities. If the requirement for award of the very lucrative, publicly funded CfD subsidy is that there should be evidence of no opposition from the local public , that would be a major achievement!
The letter to the Secretary of State and the response are copied below and provide all the detail.
LETTER TO THE SECRETARY OF STATE
Dear Secretary of State, 23/05/20
I am writing to ask that you consider the views of members of the public in the BEIS’s consultation on proposed amendments to the Contract for Difference scheme.
I am not a stakeholder, nor a statutory consultee, but I am one from the most important group that should be consulted – a member of the public that directly funds this scheme.
I was Chair of our local Community Council (Moscow and Waterside) until 2018 and I therefore feel that I understand wider public opinion.
The Chancellor, Mr Javid has pointed out that we are entering the worst recession this country has known.
Therefore it will be incumbent on all government departments, including BEIS, to reduce unnecessary expenditure and reduce costs, but particularly in areas where it will not cause further adverse financial impact on the those suffering the misery of unemployment, loss of their businesses or those self isolating at home.
Following intense lobbying, BEIS has already made preliminary announcements to the Renewable industry that on shore windfarms will again be included in bidding rounds for Contracts for Difference (CfD’s) from 2021. This appears to be a decision based on the demands of the industry, not the views of the consumer or wider public funding the CfDs.
Many members of the public are aware that the powerful Renewable industry has lobbied long and hard for the CfD scheme to be widened again to include on shore windfarms. On shore windfarms are recognised as the most lucrative, cost effective means of producing electricity from wind. The on shore wind industry has been excluded from bidding for CfD’s since 2014, as BEIS has considered this to be a mature industry.
On and off shore wind is a mature and profitable industry with continued expansion without CfD subsidy. This is evidenced by continued increase in on shore planning applications in Scotland. Prior to the CfD announcement from BEIS last year, 246MW is scheduled to go online this year, increasing towards 800MW in 2022. A total of 1.7GW is slated for construction by the end of 2023.
There is a 5.9GW pipeline of projects on the Scottish mainland that are either consented or in planning but without confirmed construction plans as yet.
Subsidy free off shore wind projects have also been progressed.
What is the justification for penalising consumers with additional costs to fund new CfD awards for projects producing intermittent generation, requiring increased capacity balancing payments and potentially producing unacceptable environmental impacts ?
The CfD is administered by the counterparty Low Carbon Contract Company (LCCC). The 15 year CfD guarantees a fixed strike price for any electricity produced, (except in periods of negative pricing) regardless of the actual wholesale price of electricity.
That difference in price can be two to three times the actual wholesale electricity cost – which is why award of a CfD is highly sought after by developers.
As the strike price increases in line with the CPI, Generators will always receive an increase in their contracted price, in line with, or above the rate of inflation, regardless of the wholesale electricity price, or the hardships occurring in other areas of business or for ordinary citizens.
To date, the wholesale electricity price has not risen to the level that was last seen in 2008 and is currently extremely low to negative and yet consumer cost for electricity are at an all time high, with household bills more than doubling since 2008.
With lower wholesale electricity costs, there has apparently not yet been a time where the CfD has provided a positive ‘difference’ to consumers such that Generators pay back to consumers any difference between the set strike price and a higher wholesale price of electricity.
The LCCC has, as one of its two guiding principles, “ to minimise costs to consumers”. There is no evidence that this scheme is minimising costs to consumers at all, but maximising profits to CfD holders.
In 2018-19 alone, the CfD scheme cost us, the consumers, £980.2 million more than the wholesale price for electricity.
Normally, electricity consumers alone would foot the bill directly for this massive subsidy/tax. At the current time, with falling demand for electricity and a very low/negative wholesale price, the UK Government (Taxpayer) is now required to step in to provide financial support to electricity suppliers, who make up the huge price difference to generators under the terms of the CfD. These costs cannot be reclaimed from consumers in such a short space of time. This is a huge extra burden to the public purse when massive health and furlough expenditure is already causing economic difficulty to the Government.
Yet electricity produced under the CfD scheme in 2018-19 accounted for only 4% of UK electricity demand. So, 96% of generating companies (both conventional, nuclear and renewables) seem to be able to exist without existing lucrative CfD subsidies.
In addition to the costs to consumers of paying for the CfD subsidy through their electricity bills, in 2018/19 there was an additional £12.3 million added to consumer’s bills, simply to pay the running costs of the LCCC so that they can meet their other guiding principle of ‘maintaining investor confidence’.
The LCCC costs to consumers will rise next year, along with increasing consumer costs to pay the subsidies to an increasing number of CfD generators under the CfD scheme.
All of these figures are within the 2018/19 annual report of LCCC https://www.lowcarboncontracts.uk/sites/default/files/2019-07/LCCC%20Annual%20Report%20and%20Accounts%202018-2019_2.pdf
In the LCCC annual report, the only reference to activity which addresses the core principle to minimise costs to consumers, is the LCCC’s encouragement of renewable companies to bid for CfD’s.
Given the already persistent, powerful lobbying by the renewable sector to the UK and Scottish Governments to extend the CfD scheme to onshore wind and provide more latitude for CfD compliance, this is a fallacious statement.
The CfD is a tax on all the peoples of the UK, designed to benefit a minority of low carbon electricity generators, but without the benefit of transparency or governance of the scheme through electoral choice.
The CfD scheme is distorting the energy market and leading to ever more aggressive and inefficient, intermittent generation of electricity through renewable energy development. Other options must be pursued if the public accept the consequences of a net zero carbon society by 2050.
The award of CfD’s appears to encourage aggressive developers not to heed the concerns of local communities. Serious adverse environmental and local economic impacts (for example on essential private water supplies and peat carbon sinks) and local economic hardship due to property devaluation and impacts on rural tourism are ignored. Consenting local government and local authorities who stand to gain from ‘community benefit funds’ and increased rateable values, or receipt of rent from hosting windfarms on publicly owned land often ignore concerns of host communities.
This is in contrast to the aims of your consultation for CfD applicants, which is to consider the views of host communities and to encourage positive engagement with developers.
Many of the windfarms now being built in Scotland will contribute little to Scottish or UK electricity demand because the grid cannot cope with high levels of intermittency and excess production. (Scotland has already met its stated aims for its own renewable energy generation) Unable to export electricity to the UK market due to grid overload, these windfarm generators then receive generous constraint payments not to generate electricity, encouraging the building of windfarms in regions with insufficient grid capacity.
Further consumer and public expense is created with the need to balance unstable generation and demand with a complex and expensive capacity market which was not required with conventional generation technology.
This bizarre energy policy appears to be in contrast to the consultation aims of providing secure, affordable energy.
As a Country, and as ordinary citizens, we simply cannot afford the level of lucrative subsidies being paid to wealthy Renewable Energy companies for inefficient and intermittent production of low carbon electricity.
As we enter the worst recession ever for the UK, there will be more unemployed people and families at home needing more domestic energy to eat and stay warm. It is these people in particular who will bear the unfair burden of providing increasing benefit to already wealthy Generators.
The economic impacts of coronavirus will be with us for very many years and consumers cannot afford the burden of this substantial guaranteed subsidy which will impact on the economic recovery of the UK.
I am asking that in reviewing the terms and application of future rounds of CfD’s that BEIS look to implementing ‘minimising costs to consumers’ as a core requirement and even consider whether the whole CfD scheme in its current format should be scrapped.
I enclose my response to the BEIS consultation, as a member of the public who is funding the CfD scheme, I I hope that you will accept this.
Yours sincerely,
Dr Rachel Connor MB.Ch.B, FRCR.
RESPONSE FROM BEIS
Dear Rachel,
Thank you for your letter of 23 May to the Secretary of State, about the Contracts for Difference scheme. The Secretary of State is grateful to you for having taken the time to write. I have been asked to respond on his behalf.
In June last year the UK became the first major economy in the world to pass laws to bring all greenhouse gas emissions to net zero by 2050. The Committee on Climate Change have said that the UK needs to quadruple renewable energy generation in the UK to reach this goal by 2050. Established renewable technologies – including both solar and onshore wind – are an important part of the energy mix and we must continue to encourage deployment of these technologies going forward to support decarbonisation of the power sector to meet this important goal.
Established technologies, including onshore wind, are expected to be amongst the lowest cost renewable technologies and we therefore expect them to play an important role in supporting the Government’s objective of decarbonising at lowest cost. As you identify, the cost of these technologies in the UK has dropped significantly and as a result we are beginning to see projects deploy without subsidy. This is a positive development. However it is also the case that many projects would be unlikely to proceed without Government support in some form. Allowing onshore wind and solar the opportunity to compete in the next Contracts for Difference auction next year will enable greater investment into low-cost renewable technologies, driving further cost reductions whilst increasing the scale of deployment needed to deliver the net zero target.
Ensuring good value for money for consumers is core to the Contracts for Difference scheme which sees projects bid for support via a competitive auction. Successful projects receive subsidy only for part of the expected lifetime of renewable projects; support which is designed to support the high upfront costs involved even in typically lower cost projects. The competitive auction process has been very successful in this regard. The last Contracts for Difference Allocation Round in 2019 secured a significant amount new renewable electricity capacity to be added to the grid at costs expected to be below market prices and without any predicted additional subsidy on energy bills. This is not only good news for consumers but demonstrates the benefits of the competitive bid process in securing longterm cost reductions across a range of renewable technologies.
We recognise that the decision to open the next Allocation Round to established technologies may not have been universally popular and we share your view on the importance of a community voice in developments which impact them. We continue to ensure that the concerns of communities are fully addressed in local authority planning considerations alongside net zero ambitions. We also want to ensure that best-practice in community engagement is shared amongst developers, which is why the current Contracts for Difference consultation also includes proposals to introduce new best-practice guidance for onshore wind developments and community engagement and benefits. I note that you have provided a response to the consultation, which will be analysed alongside other replies.
Thank you again for taking the time to write.
Yours sincerely,
V Jeffrey BEIS CORRESPONDENCE UNIT
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