Wind farm constraints continue to rise, both in total volume and in cost. In 2024 the consumer paid more than £393 million in direct costs - and very much more than this in indirect costs – to discard 8.3 TWh of wind energy.
By comparison, in 2023, 4.3 TWh of wind-generated electricity was discarded at a direct cost of £310 million.
The prices being charged by wind farms to reduce output fell in 2024 in spite of subsidies having risen, which supports our view that prices have hitherto been excessive.
However, planning application data shows that the, in our view, indefensibly high rewards for constraints continue to incentivise wind farm development in areas of the UK that have low demand and weak grid connection, resulting in high constraints.
The bulk of the additional volume and cost of constraints is due to the ever-increasing number of Scottish wind farms being sited remote from areas of demand: more than 98% of the total constrained volume arises from Scottish wind farms.
In particular, the offshore wind farm, Seagreen, whose majority owner is SSE, was alone responsible for 40% of the total volume of constraints. Seagreen is currently unsubsidised but 25% of its capacity has been awarded an as yet unimplemented Contract for Difference (CfD).
Figure 1: Top twenty wind farms with highest constrained wind output in 2024
In another blog post we have explained how deferring take-up of a CfD has enabled heavily constrained wind farms to make very significant earnings over and above what they might have made under the CfD regime.
Seagreen is clearly woefully located from the perspective of the consumer, and excellently placed for SSE and the other shareholders. Because so much of its potential output could not be used, its load factor was a mere 14% in 2024. To put this in context, government expects offshore load factors to be in the region of 40%. However, this extremely low productivity does not translate into lower earnings for the wind farm. On the contrary, it actually earns more than it would by selling to the market. This paradoxical outcome arises because Seagreen gets paid as if it had actually generated and sold the electricity, and on top of that charges an extra premium per MWh for reducing output. Bad though this is for the consumer, further insult is added to the injury because the System Operator must now bring the market back into physical balance by purchasing electricity equivalent to the constrained volume from a generator south of the grid constraint.
Putting aside the additional costs south of the constraint, the scale of the consumer cost of Seagreen can be estimated thus: in 2024 the consumer paid Seagreen £104 million for actually generating electricity, plus £198 million for the constrained volumes, and £64 million for the premium charged to reduce output.
This gives a total of £367 million.
The amount of green electricity actually generated by Seagreen in 2024 was 1.36 TWh. Therefore the cost to the consumer of Seagreen’s actually generated wind power was £270 per MWh.
To provide context for this cost, the current strike price sought by Seagreen in its Contract for Difference is £55 per MWh. No wonder that companies are reluctant to implement their contracts.
The industry and Ofgem are aware that the way that wind farm constraints are managed is not in the consumer interest. In November 2023 the then National Grid Electricity System Operator (now nationalised as National Electricity System Operator) proposed a change to the electricity market to mitigate some of these costs. The proposal document noted that the true cost to consumers of wind farm constraints was not transparent, that the market was not efficient, and that competition between generators was not fair and that consumers were paying over the odds.
They assessed that the worst-case scenario of doing nothing about the situation could result in up to £16 billion in consumer costs being incurred by 2030, a very large burden on an already heavily pressured consumer. The deadline initially set for the NESO recommendation was September 2024. However, this deadline has now been put back to April 2026. Given the scale of the annual costs this lack of urgency is deplorable, and we can only assume that neither the industry nor the government is seriously committed to addressing unfair consumer costs.