By Paul Homewood
h/t Robin Guenier
A bit of a curate’s egg this time from AEP!
Labour’s heady bid to make Britain a “clean energy superpower” has already run into cold reality, barely days into the Starmer-Reeves era.
The Government has nudged up the operating buffer for this year’s AR6 auction of fixed offshore wind contracts to £1.1bn but this is still not nearly enough to underpin the goal of quadrupling offshore wind to 60 gigawatts (GW) by 2030. Time is already running out, given the six to eight-year lag time for offshore wind farms.
Unless this buffer is backed by serious money, Labour has no chance of hitting its target of 100pc clean power in six years. It is the test case for the credibility of Ed Miliband, the plenipotentiary of Energy Security and Net Zero.
Britain’s policy of covering the wind auction budget by tacking it on to electricity bills is untenable and destructive now that wind is the backbone of the system, and electrification is the holy grail. The money has to come from the global capital markets, drawing on the Government’s blue chip credit rating.
The offshore wind auction last year failed because the maximum strike price was set too low for the world market, at the time convulsed by commodity inflation, post-Covid bottlenecks, and rocketing interest rates.
Green investment is capital expenditure-intensive and highly sensitive to rates. It wins later with low operating costs, but first you must get over the hump.
Nobody turned up to bid for the AR5 offshore round in 2023, leaving a gaping hole in the UK’s energy strategy. The UK has wasted a year. It must now lure back foreign wind companies tempted by America’s Inflation Reduction Act, Europe’s Green Deal and Asia’s offshore expansion.
Energy consultants ICIS says the state must secure a total of 33GW in this year’s auction and next (AR7) to meet its 2030 targets. The funding may need to be three times greater to lever the necessary scale.
A £1.1bn budget will deliver around 6GW in this year’s round. “We need at least 9GW. The Government has got to get this right,” said Giles Dickson, head of WindEurope.
Let us clear up one confusion. The AR6 auction budget is not a subsidy. It is the operating balance sheet that allows the state to manage contracts for difference (CfD).
The state earns an arbitrage profit or loss depending on whether the market price of electricity is above or below the CfD strike price. The Treasury should make money on the new fixed-base auctions. Floating wind turbines are another story.
The AR6 round is the first hurdle. There are others. The UK must compete with the whole world for a tiny fleet of vessels needed to build a wind farm. A new turbine installation ship costs $330m (£260m), or $220,000 a day to rent. None are built in Europe.
Only 52 installation vessels of all kinds exist. Few can handle new 14 MW turbines, let alone the 20 MW monsters on the way. BLIX Consultancy says there will be an acute shortage of both installation vessels and cable-laying vessels by the end of this decade as the world’s offshore rush accelerates.
A new report by the Royal Academy of Engineering says every lever must be pulled if Labour is to come close to its clean-power deadline. Britain’s four remaining gas-cooled nuclear reactors, all facing closure by 2028, must be kept going.
The new nuclear plant at Hinkley Point C must come online this decade (still possible). The “greenlighting” of carbon capture for gas and biomass plants, plus a little green hydrogen, could add up to 5GW of clean power by 2030.
The first 1.8GW cable of the Xlinks project bringing renewable energy from Morocco to Cornwall must be delivered by 2030. It combines Sahara solar in the day with coastal convection wind in the evening, and battery back-up, to deliver base load power.
Xlinks is now deemed a Nationally Significant Infrastructure Project (NSIP), cutting through planning obstacles. The full 3.6GW project will deliver 8pc of the UK’s power.
The UK will have 8.8GW of back-up from interconnectors to Europe once the Viking Link to Denmark is fully up and running, effectively giving the UK access to Norwegian hydro and French nuclear power.
The first of the four EGL cables bringing power from Scotland to England must be completed by its target date of 2029. It brings 2GW into play and starts to reverse the policy lunacy of compensating Scottish wind farms forced to curtail power generation for lack of cables.
The Miliband plan will fail if it continues to take 14 years to put in a new transmission line. The Electricity Networks Commissioner says this must be halved to seven years. Reforms in northern Sweden have cut the time to nearer five years. It can be done.
The current 700GW queue for grid connections must be whittled down by ending the first-come-first-serve system, which allows zombie requests to clog up the system.
The UK’s “great grid upgrade” is well under way and is further advanced than in much of Europe. Labour will nevertheless have to invoke NSIP fast-track powers to sweep aside local objections and build “electro-highways” – i.e. pylons – against simmering public resistance.
The report said this means ruffling a lot of feathers, and will test democratic and social consent.
One can discern a route to clean power by 2030 once you add in smart technology to manage demand. But I struggle to see how the UK can cover a three-week dunkelflaute doldrum at the coldest and darkest point of mid-winter.
There will not be enough green hydrogen on the market by then to plug the hole. We will need a reserve of gas-fired plants into the early 2030s.
Furthermore, it is counter-productive to bend every sinew to achieve that particular target. Rushing to decarbonise the last and toughest 10pc will push up electricity costs, ceteris paribus. That clashes with the more urgent goal of electrifying all transport and heat. Best is the enemy of good.
But if you are going to set a vertiginous target and if you hope to mobilise the nation with the elan of the vaccine task force, you had better not come crashing down at the first fence.
Let’s try and cut through to some of the more important points:
- AEP for some reason seems think there is a race to hit the 100% clean energy target by 2030. Other than the fact that it was set by the idiot Miliband, there is no earthly reason why we should aim for 2030 or any other year, or at all for that matter. The country won’t collapse if we don’t hit the target.
What matters is that the UK pursues an energy policy that makes sense, is affordable and works, which Miliband’s plan certainly won’t.
- His headline sums it up very well. Miliband’s crazy plan will cost hundreds of billions, money we plainly have not got. It has nothing to do with “austerity”, which I have always thought of a stupid term anyway. The country could never afford the plan regardless of how well the economy was doing.
- AEP believes that the current system of adding CfD subsidies on to energy bills is wrong:
“Britain’s policy of covering the wind auction budget by tacking it on to electricity bills is untenable and destructive now that wind is the backbone of the system, and electrification is the holy grail. The money has to come from the global capital markets, drawing on the Government’s blue chip credit rating.”
He seems to have finally woken up to just of shockingly expensive offshore wind actually is. However his solution of simply adding to public debt instead in order to finance more wind farms ignores the reality that taxpayers will sooner or later have to pay it all back.
- AEP misleads readers when he says:
“Let us clear up one confusion. The AR6 auction budget is not a subsidy. It is the operating balance sheet that allows the state to manage contracts for difference (CfD).
The state earns an arbitrage profit or loss depending on whether the market price of electricity is above or below the CfD strike price. The Treasury should make money on the new fixed-base auctions. Floating wind turbines are another story.”
At current market prices, the AR6 budget is definitely a subsidy. While we have no idea what fossil fuel prices may be in ten years time, what we do know is that AR6 will lock in higher electricity prices than now for many years to come. It is grossly misleading for him not to mention this fact.
- AEP rightly questions whether it is even logistically possible to build all the offshore wind needed:
“The AR6 round is the first hurdle. There are others. The UK must compete with the whole world for a tiny fleet of vessels needed to build a wind farm. A new turbine installation ship costs $330m (£260m), or $220,000 a day to rent. None are built in Europe.
Only 52 installation vessels of all kinds exist. Few can handle new 14 MW turbines, let alone the 20 MW monsters on the way. BLIX Consultancy says there will be an acute shortage of both installation vessels and cable-laying vessels by the end of this decade as the world’s offshore rush accelerates.”
- Finally he claims that “One can discern a route to clean power by 2030 once you add in smart technology to manage demand.” . But then in the next breath says “But I struggle to see how the UK can cover a three-week dunkelflaute doldrum at the coldest and darkest point of mid-winter.”
It is, of course, the hopeless intermittency of wind power that makes Miliband’s entire plan a fairy tale. Even AEP belatedly accepts that green hydrogen will be of little help, and interconnectors cannot be relied on either.
Given all of this, where is the sense in wasting hundreds of billions on upgrading the grid, building wind farms and carbon capture?