By Paul Homewood
London: 3 September 2024
Rising prices for offshore wind warn of the mounting cost of Net Zero
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The price for new electricity from offshore wind has risen to £82/MWh in current prices, a significant 58% increase since the previous successful auction.
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Higher prices will lead directly to higher household bills and the results raise the already astronomical price tag of meeting Miliband’s unrealistic target to decarbonise the power grid by 2030.
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A loophole in Government contracts could cost households up to £180m a year.
Results for the latest auction (AR6) for renewable energy subsidies, known as Contracts for Difference (CfDs), were released this morning. The auction was the first since the humiliating 5th allocation round (AR5) in which there were no bids for new offshore wind capacity. The Government has secured 3.4GW of new offshore wind capacity by awarding a large increase in price to the technology that it regards as the cornerstone of its energy plans.
The auction had an increased budget of £1.555 billion, having been increased by Miliband. It is the largest CfD auction to date and will therefore lock in far more capacity at higher prices than the previous auction.
Flexibilities in the contracts drawn up by Government officials meant that older wind farm projects could withdraw up to 25% of contracted capacity and re-enter it into this year’s auction, allowing them to take advantage of the higher prices on offer. 1.6 GW of successful bids came from such projects – a loophole that may cost households as much as £180m each year. It’s another slip up for a Department that already allowed just one windfarm to net £647 million from delaying the start of its CfD contract.
Before the election, forecasts produced by Aurora Energy Research found that Labour’s 2030 target to decarbonise the power grid was “unfeasible”, but even these forecasts used over-optimistic numbers for renewable energy costs. These new results show costs to be rising rather than falling, vindicating warnings made repeatedly by Net Zero Watch. If Miliband’s Net Zero plans could once be regarded as unfeasible, they must surely now be seen as ruinous.
Net Zero Watch director, Andrew Montford, said:
“How many times were we subjected to the chorus of ‘wind is cheap’? That refrain now rings hollow and these results show Miliband’s green utopianism to be even more costly and impractical than once feared.”
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NZW mention this new loophole, which allows wind farms to withdraw capacity already contracted for, and add it back into AR6 at a higher price:
The idea that a contractor can tear up his contract, in order to bid again at a higher price is repugnant. Presumably there was a fear that they simply would pull out of uneconomic contracts anyway.
In AR6, four projects, with a combined capacity of 498MW, have taken advantage of this loophole – Inch Cape, Moray West, Hornsea Three and EA3. All had signed contracts at £47.30/MWh (2012 prices), and instead will now get £54.23. Miliband’s largesse will cost billpayers around £800 million over the period of the contract. About two thirds will go to Danish owned Orsted, who are building Hornsea.
Although the new strike prices are lower than the ASP ceiling prices set, they are still much higher than market prices. Offshore wind, for instance, will cost £82/MWh at current prices. So far this financial year, market prices, as calculated by the LCCC for payment of CfD subsidies, have averaged £58/MWh. This implies an annual subsidy of £288 million.
It is also worth noting that, apart from Inch Cape and co, there were only two successful bidders – Hornsea Four and East Anglia Two. Obviously both of these projects can use much of the infrastructure already in place, thus saving money.
It is also relevant that about 6GW of offshore capacity was unsuccessful in the auction. We are not told what prices they offered, but this is an indication that AR7 will see much higher strike prices.
Meanwhile Miliband’s vision of quadrupling offshore wind capacity to 70GW by 2030 is more of a pipe dream than ever. We currently have about 30GW of existing or contracted offshore projects, and this new tranche of 3GW will not even start operations before 2029.