By Paul Homewood
Bear with me, as this is a bit of a recap on wind power, to fulfil a couple of objectives.
I sometimes get asked how the subsidy scheme works for renewable energy.
Most onshore wind generators (about 85% of capacity) operate under the Renewable Obligation system.
Renewable Obligation certificates (ROCs) are issued to operators of accredited renewable generating stations for the eligible renewable electricity they generate.
The number of certificates per unit of electricity varies by technology, but onshore wind earns on average ROCs worth £47/MWh.
Energy suppliers have an obligation to source a certain proportion of their electricity from renewable sources each year, and therefore need to purchase these certificates to demonstrate that they have met their obligation.
On top of the income from ROCs, wind farms also receive the value of electricity sold, typically about £45/MWh.
Smaller generators are paid via the Feed in Tariff scheme (FIT). Rates vary according to the capacity of the unit, but the total subsidy budgeted this year for FITs is £1.5bn. Although this includes solar, anaerobic, CHP and certain hydro projects, a large chunk will go to wind farms.
The ROC scheme was ended for new applicants in 2015, although generators already covered will remain so for their lifetime. Several new projects since have successfully applied for subsidies under the Contracts for Difference (CfDs) system, which has replaced ROC.
These schemes will receive a guaranteed price, index linked for 15 years, currently ranging from £88.37/MWh to £91.94/MWh. Given the market price of £45/MWh, this is effectively a subsidy of between £43 and £47/MWh. In other words, a similar amount to the ROC subsidy.
Following the 2015 election, the government has withdrawn onshore wind from further CfD auctions, but there is pressure from the renewable lobby to reverse this decision.
Last year, onshore wind produced 28.7 TWh, at an estimated subsidy of £1.4bn.
There is currently 7.0 GW of offshore wind capacity, of which 6.3 GW is covered by ROCs. On average, they receive 1.9 ROCs per MWh, worth £90/MWh.
Again this is on top of the market price of £45/MWh, so they receive total income of about £135/MWh.
There is also 0.7 GW of capacity covered by CfDs, which currently pay a guaranteed price of £166.59/MWh.
Last year offshore wind generated 20.9 TWh, at an estimated subsidy of £2.0bn.
By 2023, there will be 7.5 GW of offshore capacity under CfD contracts, at an average price of £117/MWh. This will cost electricity bill payers an extra £1.8bn in subsidies.
Despite these obscene subsidies, wind power is highly variable. Today, for instance, wind power has been virtually non existent, currently amounting to just 171 MW, less than 1% of capacity.
This means that standby capacity has to be kept in reserve. By 2020/21, this will be costing £1.3bn in capacity market payments.
In all, subsidies for wind power and standby will be costing the country more than £7bn a year, equivalent to about £270 per household.