Renewable Energy Foundation

Introduction and Summary

Those who have followed the history of the Contracts for Difference (CfD) scheme for subsidising renewables will be aware that some wind farms deliberately deferred implementing their contract with the British consumer in order to profit from a spike in market prices. Even the Department of Energy Security and Net Zero (DESNZ) admitted to the press that this was “not in the spirit of the scheme”. DESNZ attempted to deal with this sharp practice by tightening the contracts.

But experienced commercial players are extremely resourceful and appear to have found another way to secure a similar end by building and connecting well ahead of the specified start date for the contract.

For example, the Viking Wind Farm on the island of Shetland has two CfDs, one under Allocation Round 4 for half of its 443 MW, and one for the remaining half under round 5. These contracts are set to start in 2027 and 2028 respectively. But the construction of Viking and its interconnector were completed earlier this year, and it started operation in June this year, taking the market price for what energy it generated and also enjoying extremely generous constraint payments, discarding about 62.5% of its potential output while still receiving market prices for the constrained-off volume as well.

We estimate that Viking has earned over £10m in this month alone, when it would have only received about £3.5m if it had been paid under the CfD and had not been constrained. This implies a staggering price of about £199/MWh, as opposed to the already generous CfD price of £67/MWh.

These facts make a mockery of claims that projects such as Viking offer good value to consumers, or, as Viking’s launch publicity claimed, that this would one of the most productive onshore wind farms in Britain. On the contrary, it is shaping up to be one of the most heavily constrained, least productive and yet extortionately profitable wind projects ever built.

Summary:

A recent study by Bloomberg has drawn attention to the way that wind farms overstate likely generation at times of constraint and thus cause unreasonable cost (£51m since 2018) to consumers. While correct, excessive prices charged by wind farms to reduce output are a much more significant problem, resulting in much higher total costs for consumers, exceeding for example, £100m in 2023 alone.

On 23 October, 2023, REF sent a letter to Ofgem reporting a possible breach of the Transmission Licence Constraint Condition by Moray East offshore wind farm.  Apart from a belated acknowledgement of receipt of the letter on 4 January 2024, we have heard nothing further, so today publish the contents of the letter to Ofgem:

Summary

On its website the Moray Offshore Windfarm (East), known as Moray East and comprising one-hundred 9.5 MW turbines located off the North East coast of Scotland, describes itself as a “highly competitive offshore wind project”.

It is certainly notable for its extremely high levels of income, over £1 billion since it began generating in June 2021 and up to July 2023, with a strikingly high average of £234 per megawatt hour generated, well in excess of the average price of £168/MWh, received by gas-fired generators in the same period.

Renewable Energy Foundation has published two substantial studies of wind farm economics by Professor Hughes, the latest of which appeared in 2020. The present study applies the same principles to the analysis of large, utility-scale, solar generation in the United Kingdom and in the United States. Inquiries regarding the study can be made to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
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Attachments:

Economic-Solar-Generation.pdf

Payments to wind farms to reduce output are an ongoing national scandal, with the cost to consumers now totalling well over £1 billion since the payments began in 2010.

We have repeatedly observed that the prices charged by wind farms to reduce output not only routinely exceeded the subsidy income lost when constrained but were hard to justify in any case. Grid congestion preventing dispatch is a foreseeable commercial risk and the windfarms should not be compensated at all for such an eventuality.

However, it has been accepted by government and the regulator that such compensation – for lost subsidy – should be paid.

However, in recent months Scottish wind farms that are not in receipt of income support subsidy, so called “subsidy-free”, wind farms have also been charging the electricity system operator to reduce output when generation in Scotland exceeds grid capacity and local demand.
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Attachments:

UnsubsidisedConstraints

Large volumes of wind energy are being discarded in Scotland in order to preserve grid stability, with a fleet average of over 13% of generation constrained off in the years 2015 to 2021, inclusive, with a high of 19% of generation in 2020. Some wind farms have been discarding between 20% and 50% of their output, while being rewarded with generous constraint payments from the electricity consumer for doing so. The reductions in environmental benefits are not given adequate weight in the planning system, where the low marginal benefit of additional wind capacity appears to be poorly understood. This blog offers detailed data on the volumes of wind energy constrained off at a fleet level in Scotland between 2010 and 2021, and for every individual wind farm in 2020 and 2021.

It is frequently claimed that the subsidy cost of offshore wind farms has fallen over the past few years. The UK government itself is on record as recently as November 2020 claiming that:

Government support to unleash the potential of offshore wind generation has seen the cost of it fall by two thirds in the last 5 years.

Echoes of these claims are commonplace. The Times (08.07.21) reports the think tank Policy Exchange as remarking that “the cost of offshore wind power had fallen steeply in recent years”.

As work by Professor Gordon Hughes has shown, the capital and operating costs of offshore wind do not support these observations, and, as this blog will demonstrate, it is a matter of fact that the cost of consumer subsidies to offshore wind per unit of electrical energy generated (MWh) has risen and continues to rise year on year.

There is ongoing interest in Professor Gordon Hughes’ empirical work on the economics of wind power, with occasional requests for talks and summaries, and updates and recent reflections. The attached paper was presented recently to a London-based financial organisation. It summarises afresh the work published by REF in 2020, and offers additional comments.

Attachments:

GH Presentation June 2021 on Investment Returns for Wind Power

On the 10th of April this year Professor Gordon Hughes of the University of Edinburgh submitted a paper on the economics of small-scale wind generation in Northern Ireland as formal evidence to the "Inquiry into Generating Electricity from Renewable Energy” conducted by the Public Accounts Committee of the Northern Ireland Assembly.
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Attachments:

Gordon Hughes Evidence to NI Public Accounts Committee 22 April 2021