By Paul Homewood
h/t Ian Cunningham/ Philip Bratby/ Ian Magness
As we know, Orsted cancelled their massive Hornsea 4 offshore wind farm the other day. This has left Mad Miliband’s 2030 Clean Power policy in tatters.
Hornsea 4 would have been the UK’s biggest wind farm, with its 2400 MW of capacity. Its withdrawal from last year’s Allocation Round 6 (AR6) leaves just the East Anglia Two scheme with 963 MW from that auction. There were no contracts awarded at all to offshore wind in AR5 the previous year.
Remember as well that Vattenfall cancelled their huge Boreas wind farm two years ago for the same reason as Orsted.
We have about 15 GW of offshore wind capacity operational, plus another 10 GW in the pipeline, which already have CfDs. This latter includes 1080 MW from Hornsea 3, which Orsted switched from AR4 to AR6, piggy-backing on Hornsea 4 in order to procure a higher price. I cannot see how this can still retain its CfD, given that the main project has been cancelled. (I have asked the LCCC to clarify).
Labour is targeting 50 GW by 2030, which is plainly unattainable, given the project timescales involved. Nevertheless, Miliband is determined to get as much offshore wind contracted as possible in AR7 and AR8, before Labour are booted out of power.
To do that, he is going to have to offer much higher strike prices. Remember that Orsted are taking a half billion hit for pulling out of Hornsea 4, so their strike price, currently £85/MWh, is plainly far too low to make any money.
Also bear in mind that no other projects other than East Anglia Two bid as low as Orsted. My guess is that the new prices will come in around £100/MWh. As the top bid is paid to all successful bidders, strike prices will inevitable rise higher.
This presents Miliband with another problem, because the current system has a budget pot of subsidy money for each Allocation Round. The higher the prices offered, the less capacity he gets.
Which is why he is now considering changing the system to a capacity budget, not a subsidy budget. the Telegraph report:
Ed Miliband is plotting a surge in the wind farm subsidies added to electricity bills to prop up his ailing green power target.
The Energy Secretary is preparing to ditch key limits on the cash diverted from bills to turbine developers, The Telegraph can reveal.
The manoeuvre, uncovered in official documents, is expected to allow Mr Miliband to bankroll thousands of extra turbines in the next few years.
To accelerate wind farm construction, Mr Miliband wants to scrap limits on the total subsidy on offer to offshore developers in Whitehall auctions.
Instead a target would be set for the amount of electricity to be generated, with the cost to households only worked out afterwards.
Read the full story here.
Such a move would destroy once and for all claims that renewable energy is cheaper than gas. As the Telegraph report, even DESNZ are now dropping the pretence that bills will come down, (at least not until some unidentified time in the distant future!)
A Whitehall insider agreed costs could rise initially, suggesting that the investment in renewables now would bring prices down in years to come.
“It means short-term pain in energy bills, for long-term gain,” he said.
But more importantly it would be political suicide for Labour, as it would be very easy to calculate how much extra their obsession with renewables will cost the public.
Miliband needs an extra 25 GW of offshore wind. An increase in price from £85 to £100/MWh for this would add £1.5 billion a year to bills.
But much more damning would be the cumulative cost over the 15 year contract period, a total of £22.5 billion.
Could Miliband survive the charge that he had handed a £22 billion bung to his renewable chums?
John Constable’s comment in the Telegraph says it all:
“With a small tweak to the green subsidy rules Ed Miliband can give himself the freedom to quietly and quickly add many billions of pounds a year to national electricity bills.
“If the Chancellor were to propose tax increases of this scale affecting every household and business in the country there would be a storm of criticism in Parliament and elsewhere.
“How much longer will the Prime Minister allow the Department of Energy Security and Net Zero to operate without democratic accountability?”