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« Greenpeace: incompetence and hypocrisy | Main | Potash rot »
Monday
Jun232014

Falling prices, falling windfarms

The FT notes an interesting side effect of falling wholesale electricity prices in the UK: as prices come down the subsidy paid to windfarms increases. Now at first sight this would appear to represent something of a dark cloud for the consumer, but in fact there is a substantial silver lining. Because the total amount of subsidy has been capped, there is effectively a limited pot of money and if the analysis of prices coming down faster than predicted is correct then that pot is going to be eaten up faster than expected:

This could have worrying implications for many big offshore wind projects in development, which are heavily reliant on state incentives.

The UK needs such projects to go ahead if it is to meet its legally binding target of generating 15 per cent of energy from renewable sources by 2020.

Signs have emerged that concerns about the size of the subsidy are already having a chilling effect.

So if they carry on in their current vein, the Westminster geniuses may achieve the remarkable feat of fixing the market in such a way that nobody is willing to build any new power plant of any kind.

Astonishing, when you think about it.

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Reader Comments (30)

It looks like the law of inintended consequences could strike again.

Jun 23, 2014 at 10:05 AM | Unregistered Commenterpesadia

Aren't our politicians wonderful?

Jun 23, 2014 at 10:15 AM | Unregistered CommenterRoy

pesadia
The only law that can be guaranteed to apply where politicians are concerned.

Jun 23, 2014 at 10:28 AM | Registered CommenterMike Jackson

Stasis and uncertainty, taxpayer cap, if all of that equals an end to the construction of off shore birdmincing boondoggles - isn't that a decent outcome to the green agenda idiocy?

Verily, is it not the case that, shoving more concrete and steel 'sculptures' out at sea necessarily ≠ greater generation of electricity. Therefore, the sooner the building of these steel monsters is halted the better it is for all consumers, inevitably there will be a gap in generating capacity but that will be a cause of shutting down coal fired plant - not as a result of not building more sea whirlygigs.

Westminster take note, have a look across to our competitors. You don't have to look very far, evidently the Fatherland is playing a sly game - while paying lip service to the UNECE green agenda but really Germany has given up the ghost pertaining to building more sea birdchoppers. Thus, the Germans are sinking €billions into 20 odd new coal plants and fired by dirty, very dirty lignite ie BROWN COAL!

CAGW is dead, the green agenda is economic lunacy and no one other than the lunatics sitting in Westminster cares a whit about saving the planet................When is Westminster going to read the runes and get the message, when is it actually going to sink in?

But wait! Oh dear God Miliband the "my da was a communist and so I am" left wing fruitcake - could be our new PM..................................

Jun 23, 2014 at 10:31 AM | Unregistered CommenterAthelstan.

The total cost is capped by the Levy Control Framework, which has been set at £7.6bn (2012 prices) for 2020/21.

However, like any other govt budget, it can be changed.

Bearing in mind that 2020 is not just one, but two elections away, I would not have much confidence in the figure remaing unaltered. Particularly, if we start falling behind on our EU imposed renewable and decarbonisation targets.

Jun 23, 2014 at 10:33 AM | Unregistered CommenterPaul Homewood

Westminster geniuses - Love it !

I have a bumper sticker on the back of my gas guzzling Landrover - "Politicians - putting the N in cuts"

Jun 23, 2014 at 10:35 AM | Unregistered CommenterGummerMustGo

I have often wondered why, when wind farms were/are approved, there wasn't the requirement for a 120% of nameplate output hot spinning reserve generation having to be built on site at the same time. Having that reserve on site would make sure there is a constant reliable power output from the site and if the metered amount of power from the reserve didn't attract a subsidy we might see the reality of wind power and subsidy farming.

Jun 23, 2014 at 10:40 AM | Unregistered Commenterivan

I wouldn't get too excited just yet.

"East Anglia One windfarm, off the coast of Suffolk, could become one of the largest offshore windfarms in the world"

http://www.theguardian.com/environment/2014/jun/17/uk-government-gives-green-light-to-offshore-windfarm

Jun 23, 2014 at 10:51 AM | Unregistered CommenterCheshirered

Sorry to be a party pooper but the piece seems tosh to me or, more accurately, routine "not enough subsidy" whinging from industry bit players.

As I understand it, wind power development is driven by the Renewables Obligation (RO/ROS) which came into force as a result of 2002 Acts passed by the Westminster and Scottish-Pretendy Parliaments respectively (2005 for N Ireland). Though it does not stress the critical need to keep the goal-posts moving (ever-increasing "renewable targets"), the workings of the RO system are fairly well explained in the Wiki entry:

http://en.wikipedia.org/wiki/Renewables_Obligation

Though ROCs for off-shore generation are more lucrative than those for on-shore, there are fears that the significantly higher cost of off-shore projects and the on-going technical issues to which they give rise will make them unviable. The major investors/generators (RWE, SSE and the like) are beginning to have cold (wet?) feet as the full costs and risks of hair-brained EU-driven energy policies hit home.

However, component suppliers (whose plight is discussed in the FT piece) benefit only indirectly from the output-driven income from ROCs and have no long-term commitment to the power supply industry. So they lobby for direct subsidy for the plant, not indirect subsidy based on production. They've been doing that in various forms for years but, even as the bubble looks set to burst, they seem to be lobbying as energetically as ever. As here.

Jun 23, 2014 at 11:07 AM | Unregistered CommenterDaveB

"So if they carry on in their current vein, the Westminster geniuses may achieve the remarkable feat of fixing the market in such a way that nobody is willing to build any new power plant of any kind.

Astonishing, when you think about it."

I am not sure if that was put tongue in cheek or sarcasm, however, as is quite clear to anyone that has the capacity for independent thought, FUBAR is the most likely outcome of any government action. While it is undeniable that since the end of the 19th century and particularly post 1950 the average Briton has seen an ever improving standard of living and a rising disposable income, the quality of Government, its services and provision have steadily declined. Unfortunately not many of us have memories or experience of decade-long changes. Those of us who do can see just how much hospital care, education, community life, local services, policing, the military services and so on have declined, although much of that decline is hidden by technological advances. For those who can, just imagine how modern life might be if we had both the technological advances and the standards and ethics we used to take for granted.

Two things I always keep in the forefront of my mind; government is generally the problem, not the answer and government is not our friend, it does not govern in our interests but in the interests of its true movers and stakeholders, big business, big finance, political parties, the government machine, the institutions, the Establishment and most damning of all, their cronies. These are the people they listen to, these are the people that promote and guide legislation, these are the people that benefit, not you and me.

Jun 23, 2014 at 11:15 AM | Unregistered CommenterPeter C

"as prices come down the subsidy paid to windfarms increases"

In real terms, or just as a proportion?

WRT 2020 targets, isn't Germany also signed up?

Jun 23, 2014 at 11:15 AM | Registered Commenterjamesp

They won't meet any of these ridiculous targets regardless of what they subsidise.

Jun 23, 2014 at 11:33 AM | Unregistered CommenterJamesG

That "legally binding target" is only as binding as our betters want it to be.

Jun 23, 2014 at 11:38 AM | Unregistered CommenterGareth

That "legally binding target" is only as binding as our betters want it to be.

Yes. A good example is "illegal immigration" ... which is only illegal when they want it to be illegal.

Jun 23, 2014 at 11:49 AM | Registered CommenterMikeHaseler

Is it the windmills here that we are talking about?

http://www.gridwatch.templar.co.uk/

Look at how much electricity they are generating right now and how much they have churned out in the last week. If we aren't careful, the grid could melt through overload.

How can anyone, even that clown Davey, look at the above site and still think windmills are a good idea? How bad does your green-blindness have to be to prevent you seeing the truth?

Jun 23, 2014 at 12:26 PM | Unregistered CommenterSteve Jones

"That nobody is willing to build any new power plant of any kind"

Could we hope this would apply to STOR as well? Then we can be sure the lights will go out, and the masses will finally realise what's going on...

Jun 23, 2014 at 12:47 PM | Unregistered Commenterdave ward

http://www.newsbiscuit.com/2014/06/23/menopausal-womens-hot-flushes-to-power-national-grid/

Jun 23, 2014 at 12:51 PM | Unregistered CommenterVictoria Sponge

There are lots of ways around this. The first is that the Levy Control Framework limits are in "2011/12" prices - to be translated into money of the day at the whim of annual Spending Reviews - the £7.6bn figure is already more like £10bn in m.o.d. in 2020. The DECC themselves claim (in their consultation on how to implement the 2013 Energy Act)

We do not expect the CfD budget to change frequently. However the scheme retains the flexibility to adjust the budget at Government’s discretion. To provide certainty to generators, budget cannot be decreased for applicants within an allocation round, but can be increased at anytime.

The real risk for those relying on these subsidies is that they will simply prove unaffordable and will be legislated out of existence. A new tax could easily recoup from those trying to hold out. Of course, the real issue will be providing reliable generating capacity at sensible cost.

Jun 23, 2014 at 1:08 PM | Unregistered CommenterIt doesn't add up...

Why are wholesale energy prices dropping?

Jun 23, 2014 at 1:46 PM | Registered Commenterjferguson

Strange that no-one in Westminster/the DECC seems to have noticed that, for the last fortnight, there has been NO BLOODY WIND (currently contributing 0.5GW out of an installed capacity of nearly 70GW...)

Now THAT'S what I call jolly good government - shut proper power stations and rely on the weather...

Their solution..? 'Build MORE wind farms..!' As Del Boy would say, you know it makes sense...

Jun 23, 2014 at 2:00 PM | Unregistered Commentersherlock1

Is there REALLY no-one brave enough in the media to confront Ed Davey with the question: 'Secretary of State, isn't it obvious that all these expensive wind farms, ruining our countryside and seascape, are a total waste of time, materials and effort, contributing next to nothing to the nation's electricity demand..?'

Jun 23, 2014 at 2:08 PM | Unregistered Commentersherlock1

From the Ecclesiastical Uncle, an old retired bureaucrat in a field only remotely related to climate with minimal qualifications and only half a mind.

(1) There does not seem anything astonishing in any of this - it is the inevitable result of politicians trying to govern at far too detailed a level in the way that now seems routine. Policy -the business of politicians - should not be like this. It should be clear and directed at the achievement of a purpose that they and their constituents can understand without undue effort. The sort of complexity and detail revealed by bloggers' contributions and the FT article should be the business of the bureaucracy and recognised as beneath the notice of politicians and beyond their comprehension. As a result these matters would be outside politics and the more readily resolved, to the public good in the sort of calm discussions the bureacracy would excel in.

(2) Peter C.

IMHO, over-conspiratorial.

In the actual world we inhabit policies, maybe in too much detail, are made by politicians. Politicians are paid from the public purse and politics has become a career choice. The primary objective a politician has in making any decision is to ensure the continuation of his career and the income, influence and life-style that go with it - after all he cannot influence anything very much if he loses his seat - and it is these decisions, made on such mundane grounds rather than as a result of the overt or covert influence of banks businesses and the like that determine what happens to the country.

Jun 23, 2014 at 2:38 PM | Unregistered CommenterEcclesiastical Uncle

Can't be arsed reading the links, since, if correct, all the pollies need to do is vote an increase in the budget, lose-lose. Having just read your excellent post on how & why we aren't running out of potash, I fail to see why any of us would genuinely think that we are about to "run out" of hands reaching into our pockets...

Jun 23, 2014 at 3:26 PM | Unregistered CommenterClunking Fist

@ Ecclesiastical Uncle

Over conspiratorial? If it was my contention that it was a conspiracy you might have a point, but it isn't. How many back bench MPs or affiliated Lords do you think plough their own furrow rather than that dictated by the party hierarchy? How often are there free votes in the HoC? How many MPs seek the views of their constituency and vote in accordance? How many MPs actually try to engage or inform their constituents on policy or discuss proposed legislation with them?

Who do you think the likes of Cameron, Osborne, Milliband, Balls and so on listen to? I know it isn't me and I doubt it is you. They listen to cronies and sycophants and they listen to the kinds of vested interests I listed previously. I accept they listen to public opinion to some degree, especially close to elections and I accept they are usually well-meaning and well intentioned. The point I am making is that too often they turn for advice to people that have their own interest paramount, this is why legislation and regulation so often fails to meet intentions. That MPs seem to abandon every shred of common sense as soon as elected only makes it worse.

Any way, this is not a political blog so I suppose we should leave it there.

Jun 23, 2014 at 4:14 PM | Unregistered CommenterPeter C

Peter C: I agree that you weren't contending it was a conspiracy and that's worth clarifying. But on

this is not a political blog

I can't agree. It's highly political. And it's concerned with science, good and bad. I don't think we should limit conversation on this basis and I think your interaction with Eccles Uncle is bang on topic. So thanks.

So if they carry on in their current vein, the Westminster geniuses may achieve the remarkable feat of fixing the market in such a way that nobody is willing to build any new power plant of any kind.

As others have pointed out a way can no doubt be found around the problem but only at the further expense of consumers and taxpayers. The problem is that the free market has somehow been discredited in this crucial foundation for national well-being - though Nigel Lawson would argue, and I would agree, that application of proper market principles to energy in 1980s led to consistently low prices compared to our competitors. There's no analogy with banking and its implicit guarantee of government intervention when the poor dears get into trouble. Or there certainly shouldn't be.

How do we rediscover the power of the price mechanism within freed-up energy markets? That's the most basic question here. Another well constructed blog post from the Bish. But I myself am now on the BH-lite diet. Expect a little less from this voice for a while.

Jun 23, 2014 at 4:29 PM | Registered CommenterRichard Drake

Slightly O/T: windmill maintenance - so easy, so cheap! (see pic):

http://www.dailymail.co.uk/money/markets/article-2665254/Alstom-General-Electric-await-outcome-talks-10bn-deal.html

Jun 24, 2014 at 2:06 AM | Unregistered CommenterBilly Liar

jferguson:

Why are wholesale energy prices dropping?

Because energy companies have stopped buying forward hedges against the risk that politicians impose a price freeze. Now the banks that sold the hedges can relax and take their profits.

Jun 24, 2014 at 11:38 AM | Unregistered CommenterIt doesn't add up...

From the Ecclesiastical Uncle, an old retired bureaucrat in a field only remotely related to climate with minimal qualifications and only half a mind.

Peter C

Yes, conspiratorial was the wrong word. More things go wrong by accident. And I buy your thesis in so far as it applies to the admittedly huge body of policy that does not cause vociferous and general opposition. In respect of such policy areas, an indifferent public gets policy that bodies like banks, businesses and trade unions want because such bodies organise themselves to make their wishes known to government, and not those that you and me, lacking the required resources, keep to ourselves.

And it would not surprise me to learn that the PM or some other policy-maker went to a bank, business or trade union to get information of use in the formulation of policy. Why not to me or you? Simply because the PM knows that it is far more likely that such bodies have deployed a much larger range of resources than is likely to be available to you or I in respect of such matters. And not because he likes the views of such bodies.

So yes, it does seem inevitable that the views of banks, businesses, trade unions and the like will be listened to by policy makers, and that these views will promote the interests of these bodies. But I doubt anybody can come up with some system of governance that does not include such practices and therefore it appears inevitable, in any system, that the interests of these bodies will be accorded disproportionate importance. However, should correction of any bias in favour of any of these bodies not be the duty of the politician? And while it is clear that most current politicians are quite incapable of undertaking such a task, one must ask if this has always been the case. Were we not better served in the past?

Richard Drake

The political nature of these submissions. A matter, surely, for the Bishop.

Jun 24, 2014 at 3:17 PM | Unregistered CommenterEcclesiastical Uncle

E Uncle: I think we can safely assume from past posts and moderation that the Bish isn't afraid of, or offended by, politics. One of the strengths of this blog is that it's not just political. Perhaps that's what Peter C was trying to say.

Jun 25, 2014 at 5:37 AM | Registered CommenterRichard Drake

There are clearly no limits to the lunacy of those in charge at Westminster and also in the EU. The Chinese cannot believe their luck. Their economy is growing faster and faster. They are commissioning new Coal fired power plant at a rate of one a week and pumping out cheap electricity to power their economy's growth.

Jun 29, 2014 at 6:30 AM | Unregistered CommenterNicholas Tesdorf

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