From NOT A LOT OF PEOPLE KNOW THAT
By Paul Homewood
The wheels are falling off the offshore wind bandwagon:
A string of offshore wind projects meant to power Britain are in jeopardy after the global race to net zero sent costs soaring, casting doubt over the industry’s future as a cheap source of energy.
A surge in supply chain costs has pushed up the price of wind turbines, while increases in global interest rates have raised refinancing costs substantially.
It has made several projects unviable just a year after they won government subsidy contracts – leading to fears from industry insiders that Britain’s future is in jeopardy as the “Saudi Arabia of wind”.
Inch Cape, a 50:50 joint venture between Ireland’s ESB and China’s Red Rock Power to develop a project located 15km off the east coast of Scotland, is understood to be at risk, with the Irish side refusing to proceed with a so-called final investment decision (FID) after balking at the economics of the project.
One source said: “People won’t invest if it doesn’t give you a decent return on equity. And presently, it’s hard to see how it can.”
Schemes developed by Danish company Ørsted and Swedish player Vattenfall are among other projects understood to be at risk, as the industry seeks more government help to ensure projects remain viable.
Senior executives have also described Net Zero Secretary Grant Shapps as a “remote” figure who is reluctant to engage with company bosses.
The struggles faced by some of the biggest offshore wind developers raise fresh questions about whether the Government will achieve its target of 50GW of offshore wind by 2030, from current levels of around 14GW.
So-called contracts for difference (CfDs) are designed to guarantee companies that operate offshore wind projects fixed prices to sell electricity over a 15-year period. If the market price falls below the so-called strike price, the Government makes up the difference.
However, if the reverse is true, the companies must pay money back to the Government.
Last year’s CfD auction was the biggest to date and secured enough capacity to provide more than 10 million homes with clean power.
However, it is understood that the £37.35 strike price secured by Inch Cape is currently “below the waterline” for ESB, meaning they are not satisfied with the level of returns on offer.
“It should be nearer £50 to £55,” a source said.
The Norfolk Boreas offshore wind farm operated by Vattenfall is also understood to be at risk as costs mount.
A spokesman admitted that market conditions were “extremely challenging”, suggesting that a final investment decision was not forthcoming. He warned that the Government must reflect the realities of the market, suggesting Vattenfall was unwilling to proceed without more state help.
Catrin Jung, the company’s head of offshore wind, said: “Vattenfall has not yet taken FID on the Norfolk Boreas offshore wind farm.
“Market conditions are extremely challenging currently, with rising costs and a supply chain crunch as well as increasing costs of capital. We are looking at the best way forward for all three projects which make up the 4.2GW Norfolk Offshore Zone and how we can work with the supply chain, including what opportunities there are for UK businesses.”
Ørsted’s Hornsea 3 in the North Sea is also understood to be at risk, although a spokesman insisted that the company was “increasingly confident that we will be in a position to take a Final Investment Decision during 2023”.
The spokesman added: “The offshore wind sector has delivered huge growth in the UK over the last decade but it has arrived at an inflection point.
“It will require continued focus from stakeholders in Government and across industry to ensure offshore wind delivers on its potential to become the backbone of the UK’s energy system and bring further investment, provide low-cost electricity for consumers and help deliver our net zero ambition.”
Insiders suggested that Red Rock Power, a subsidiary of China’s state-backed SDIC, is willing to proceed with Inch Cape at a loss in order to avoid the embarrassment of abandoning what would be its biggest investment in offshore wind in Europe.
However, it is understood that any decision to proceed would have to involve a project redesign.
A joint statement issued by ESB and Red Rock Power said the companies remained “strategically aligned and committed to the delivery of the Inch Cape Offshore Wind Farm project”.
A Department for Energy Security and Net Zero spokesman insisted that Mr Shapps “regularly engages with the industry”. The spokesman said: “Offshore wind is a vital part of our work to boost energy security and cut emissions.
“Our plans to power up Britain, combined with the annual auction process now in place, gives the industry more confidence to invest.
“We have already attracted £120bn of private investment in renewables since 2010 and expect to attract a further £100 billion of investment which will support up to 480,000 jobs by 2030.
It has been apparent for a long while that the prices agreed under CfDs by offshore wind farms are in no way viable. It is worth noting that the £55/MWh figure quoted as a reasonable price is at 2012 prices, and works out at about £67/MWh at current prices. This certainly does not equate to the “cheapest” claims made by the renewable lobby. Furthermore because CfD prices are inflation linked, these prices will likely be over £80/MWh by the time the wind farms come on stream.
With interest rates now back to proper levels, and supply chain issues pushing up costs, the economics of offshore wind look distinctly unfavourable. If investors in these Round 4 auctions are getting cold feet, despite the fact they can sell on the free market anyway, what chance is there that investors will bother to bid at even lower prices for the next allocation round? And if these investors pull out, the 2030 wind power target is pie in the sky.
Meanwhile the reply by the increasingly absurd DESNZ is the usual stock reply – £100 billion investment, which we will have to repay with interest eventually; and all of those wonderful green jobs, which never actually seem to materialise!
But perhaps the most absurd comment of all is this:
“Senior executives have also described Net Zero Secretary Grant Shapps as a “remote” figure who is reluctant to engage with company bosses.”
Well, I am very sorry, but when you sign a contract, you are expected to fulfil it! You don’t go back moaning a year or two alter saying “I’m sorry, but I got my calculations wrong, can I have some more money?
FOOTNOTE
Yet again we see this silly comment by the Telegraph about a global race to net zero. This is the pathetic nonsense spouted by the increasingly irrelevant Jeremy Warner and Ben Marlow.
There is of course no such race, which implies that there is some sort of reward for those countries jumping off the clifftop first! On the contrary, most of the world is quite happy to let Britain, the EU and US continue with the madness, while they make themselves richer with the help of fossil fuels.
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More Saudi Arabia of hot air, than wind.
Yes, “Saudi Arabia of Wind” couldn’t be a more ludicrous Boris metaphor at so many levels, the most obvious being the ability of the Saudis to control price by turning the taps on and off!
Good report by Paul. As the costs rise and the subsidies decrease there will be a slow-down, if not outright halt, in approving and building offshore wind turbine farms. A quick check shows the cost of “decommissioning” an offshore wind turbine is 60% to 70% of the installation cost. Did the constructed, or contemplated, offshore wind farms post a “Reclamation Bond”? Like the ones mining projects post before starting anything? NO! So, who will eventually pay for this removal? Left in place as a reminder for future generations? Left in place as local fish attracting reefs? If the sponsor utility does not declare bankruptcy their clients will pay, through greatly increased electricity rates. Enough already.
The theory was that ‘they’ would promote the development of windmills with subsidies. After the market developed, windmills would become almost free, just like cell phones and computers. (… but, but, but, my latest cell phone cost more than a thousand bucks. True, but such a device would have cost a zillion times more using 1970s technology, and you sure wouldn’t be able to carry it around with you. I remember core memory which cost, IIRC, around a buck a bit.)
Of course there were people, literate in math and physics, pointing out that Moore’s law couldn’t possibly work for windmills. The knowledge was not at all hidden. I would say it was willfully ignored.
Then there are the illiterates who point out that the wind and sunshine are free. Amazingly, I still hear that crap coming from the mouths of supposedly intelligent, and probably over-schooled, people.
As ‘they’ try to push renewables to 100% of the grid, the necessary subsidies become impossible … literally, not figuratively.
The chickens are finally coming home to roost.
“the wind and sunshine are free”! Reminds me of the guy sitting in a $70,000 fishing boat, towed by a $50,00 truck, which he drove 450 miles to go fishing. “”Free fish, every day. What’s not to like”.
Hmmmmm, Moore’s law for windmills. What were they expecting, in 20 years time, they’d be the size of a chess piece, outputting GWs?
🙄 😂
Massachusetts and other East Cost states have several offshore wind projects that are no longer viable, based on the negotiated price schedules. c/kWh.
Wind, solar and battery system turnkey capital costs and electricity storage costs likely will be much higher in 2023 and future years, than in 2021 and earlier years, due to:
1) increased inflation rates,
2) increased interest rates,
3) supply chain disruptions, which delay projects and increase costs,
4) increased energy prices, such as of oil, gas, coal, electricity, etc.,
5) increased materials prices, such as of tungsten, cobalt, lithium, copper, manganese, etc., 6) increased labor rates.
Massachusetts Offshore Wind in Big Financial Trouble
https://www.windtaskforce.org/profiles/blogs/massachusetts-offshore-wind-troubles
Regarding UK offshore wind, the government liars about several hundred thousand new jobs, and lower household electric bills, and the UK being the “Saudi Arabia of Wind” has been in off-the-charts overdrive.
It took 23 years for the UK to EXPENSIVELY build 14,000 MW of offshore wind turbines, that produce EXPENSIVE electricity, and caused INCREASED HOUSEHOLD electric rates
Now, the government wants to build 26,000 MW OF ADDITIONAL wind turbines in less than 7 years?
There is no physical capability to do that.
And that 26,000 MW build-out would be at much higher turnkey cost per MW, and would produce much more expensive electricity, c/kWh, than the existing offshore wind turbines
How in hell do these liars get into these jobs?
Why do their words get magnified by the government-subsidized media mouthpieces?
“However, it is understood, the £37.35 strike price “secured” by Inch Cape is currently “below the waterline” for ESB, meaning they are not satisfied with the level of returns on offer.
“It should be nearer £50 to £55,” a source said.
That source is POORLY INFORMED
.
It has been known for SEVERAL YEARS, the prices agreed under CfDs by offshore wind are in no way viable.
It is worth noting, the £55/MWh figure, quoted as a reasonable price, is at 2012 prices, and works out at least £67/MWh at 2023 prices, and likely much higher.
This certainly does not equate to the “cheapest” claims made by the wind lobby, and government bureaucrats, and trumpeted by the lapdog mass media
.
Furthermore, CfD prices are inflation linked (the UK has an 8.5% inflation rate in 2023, near the highest in Europe)
These strike prices likely will be much greater than £80/MWh by the time the wind projects start producing electricity in a few years.
Quantifying the cost increases: “Global wind developers are facing major challenges due to rising interest rates and supply chain costs over the past year. Sven Utermöhlen, chief executive of RWE’s offshore wind business, told the Global Offshore Wind 2023 conference in London this week that the costs of developing offshore wind have risen 20-40 per cent since Russia’s invasion of Ukraine. He added that he did not expect costs to fall anytime soon.”
https://www.ft.com/content/4621f549-85dc-4731-b3ad-6d76969c31d4?mc_cid=3cbd42925d&mc_eid=7f17b09564
Long term: https://www.cfact.org/2023/06/20/offshore-wind-costs-bound-to-go-up/
Jobs are costs not benefits: https://www.cfact.org/2023/05/16/the-left-thinks-offshore-wind-costs-are-benefits/
There are no benefits: https://www.cfact.org/2023/05/31/offshore-wind-may-not-reduce-co2-emissions/
“the costs of developing offshore wind have risen 20-40 per cent since Russia’s invasion of Ukraine”
The costs of fossil fuels have gone up a lot more than that since Ukraine.
So how is it petrol, diesel etc have all come back down in price?
1.48/l
Here is the cost of gas, primary FF used in UK for electricity generation. About 2.5 times what it was before the war, and of course has been much higher:
Nick, try answering the question. I know what U.K. prices are doing
RWE is a German wind company speaking at a London conference. UK gas prices are a good guide to the costs of alternative electricity generation.
That’s no answer and Germany? Who cares?
“”The costs of fossil fuels have gone up a lot more than that since Ukraine.””
So how is it petrol, diesel etc have all come back down in price?
1.48/l
Have another go
OK. It’s not relevant to what I was talking about, but here (from here) are UK petrol and diesel prices
You still refuse to answer.
It’s a very simple question….
That’s the pump price, not the wholesale. That’s a different conversation.
So, if renewables are so cheap, why aren’t they mitigating that gas price rise.
Incidentally, the problem isn’t the gas price in the UK, which at the consumer end has not risen nearly as much as electricity. Guess where we get roughly 30% of that electricity from?
Renewables generate electricity, not gas.
Sometimes. Not nearly enough, or reliably. Cannot function without 100% backup from reliable generation. It is doubtful that “renewables” will ever return as much energy as it took to produce them, to say nothing of environmental damage caused by the mining of materials and the destruction of wildlife.
“renewables”- meaning you have to renew those solar panels and wind turbines every few decades?
Was that not a big enough clue for you dummy?
We get 30% of our electricity from renewables. It should of course be much more but renewables don’t operate close to their much quoted nameplate values……
Petrol < £1.38/litre currently where I am, I put some in the tank on Friday.
October 2021 around £1.42/litre that was 4 months before the invasion and 2022 UK high inflation.
London prices at my end
Electricity is not generated using retail petrol.
“”retail petrol.””
Happens to be double taxed – you did know that?
Or enough by “renewables”. I’m getting tired of having to complete your sentences.
You have been whingeing about the price of gas, which is related to oil production, being more expensive since Russia intervened in Ukraine before NATO marched in and parked its Nukes on the Russian bored with Ukraine.
Ben simply pointed out that, as usual, you are wrong.
You know nothing about what goes on in the UK. We imported less than 4% of our gas from Russian so were better insulated from the Europe wide gas crisis and wild price rises of oil and gas.
NATO did no such thing. Regardless, you seem to not care that Russia also promised to respect the territorial integrity of the Ukraine, a promise that it has been violating for decades.
No they haven’t.
and come down again to previous levels…..
that must please you very much, that increase in ff costs!
Nice deflection, Nick, but I do not see the connection between today’s spot price of gas with the construction and financing cost of multi-billion dollar industrial wind facilities.
The war made every aspect of electricity generation more expensive. Construction and financing is a once only cost; thereafter the wind is free. With gas, the higher fuel prices will be a drag year after year.
FALSE
In Nick’s world, maintenance is free and cost of back up is free.
Nick has been corrected on this absurd claim of his dozens, if not hundreds of times. Then again, it’s not like Nick’s job is to spread information.
Exactly, he keeps coming back for more body blows again and again, unfazed.
The war made electricity more expensive where? In UK is cherry picking. Construction is “once only cost” you say, so those windmills run forever? Hoist your own petard here, Mr. Stokes.
“thereafter the wind is free”
Tell that to Siemens
https://wattsupwiththat.com/2023/06/25/siemens-energys-troubles-a-case-study-in-the-misallocation-of-resources/
“The problem at Siemens Energy arose from a “substantial increase in failure rates of wind turbine components,” leading to a significant technical review and repair process expected to cost upwards of 1 billion euros ($1.09 billion). This is not just a company-specific problem but one that underlines the broader challenges facing the renewable energy sector.”
LOL! You must be joking…
He’s not joking, he’s deflecting.
“the costs of developing offshore wind have risen 20-40 per cent since Russia’s invasion of Ukraine.”
Russia isn’t even in this supply chain! Why did folk buy into such nonsense, vote in such fools every election cycle for decades while watching their economies nd wellbeing sink evermore rapidly?
“Yet again we see this silly comment by the Telegraph…”
Well, yes. A whole lot of gossip, from folks with a distinctly anti-wind slant, which Paul Homewood quotes as the authority. But one piece of data it does have is:
“Last year’s CfD auction was the biggest to date and secured enough capacity to provide more than 10 million homes with clean power.”
Then it says
“However, it is understood that the £37.35 strike price secured by Inch Cape is currently “below the waterline” for ESB, meaning they are not satisfied with the level of returns on offer.”
It’s an auction. That’s what they had to bid to get started. It’s low because a lot of other people wanted the opportunity.
Of course, like many, they could proceed without a CfD at all.
“This certainly does not equate to the “cheapest” claims made by the renewable lobby.”
The £37.35 is a strike price. It relates to the price you get, not costs. And the complaint is that it is low relative to recent price history, so they will end up just having to pay back the excess, whatever their costs. Here is the recent history (OfGEM):
I have added a green line at the £37.35 level. If the company gets a higher price, it has to pay back the difference. Doesn’t look like a good deal. ESB would probably defer taking up the CfD.
Unfortunately at a strike price of £37.35 offshore wind is hopelessly uneconomic which is why, rather than exercising their CfD agreement, the offshore wind generators were reaping massive windfall profits during the recent electricity price spike.
“offshore wind is hopelessly uneconomic”
…
“the offshore wind generators were reaping massive windfall profits”
Makes no sense. A CfD is just a hedging agreement. They are currently better off without it. The low strike price is a problem because it will force them to pay the other party, regardless of their costs.
They have done without it. Our government was stupid enough not to allow for the current circumstances and compel renewable businesses to conform to the CfD. Consequently they are ignoring it and selling their electricity at bloated cost and no one can do anything about it. Hence the ‘windfall’ profits oil and gas providers are punished for by punitive taxes.
No one has a bias against wind, the bias is for wind.
No one I know actually objects to wind itself, assuming it can function on an equitable basis with FF’s. If there are to be subsidies, which there always are for both, make them equitable.
From memory, I believe the subsidies for wind are roughly equivalent to the Barnet formula provision by England to run the Scottish economy.
You have no idea what goes on in the UK Nick, so wind yer neck in!
“compel renewable businesses to conform to the CfD”
Why should they do that? The CfD is just s commercial contract you can buy in the market; the LCCC version had an element of potential subsidy if the strike price was held artificially high. If they proceed without CfD, they discard any possibility of subsidy, and operate on the same basis as any other company. Why not?
Windfall profits taxes were paid by fuel producers, not electricity generators, who in fact suffered from the high FF prices. Wind and sun are free.
Coal and oil are free too. All you have to do is have the infrastructure in place to access them. Just like wind and sun–you still need infrastructure to make use of the free energy.
Because it was a vital agreement detail to ensure renewables companies didn’t plunder the market, except our government forgot to include a compulsion clause.
The purely voluntary Cfd proposal – thought I’d point that out.
“Capacity” means jack, nick, if the wind doesn’t blow. It’s a trojan number, used to sneak past cursory examination of the fact that wind never reaches its nameplate capacity. It often comes nowhere near it.
What did I say about capacity?
Edit – OK, I see that someone talked about the CfD auction being a record in capacity terms. It would have been a record measured in any other way.
Like you’re a stuck record……
Except they didn’t measure it any other way. They specifically chose to measure it in capacity, rather than in actual or predicted output. It’s like buying bags of sand based on the capacity of the bags rather than the actual contents. If each bag is only filled to 1% of its capacity, it doesn’t matter if you just made the largest sand capacity purchase in history, because you’re still paying a lot of money for not very much sand.
“They specifically chose to measure it in capacity”
Yes. They are dealing with an investment, and capacity is what you pay for.
Wrong again. Capacity is what they charge for. What they deliver, which is a long way short of capacity, is what we pay for.
NICK,
If they bid the strike price, and they get less, the government makes up the difference
If they bid the strike price, and they get more, they have to pay the government the difference.
“However, it is understood, the £37.35 strike price “secured” by Inch Cape is currently “below the waterline” for ESB, meaning they are not satisfied with the level of returns on offer.
“It should be nearer £50 to £55,” a source said.
That source is POORLY INFORMED
.
It has been known for SEVERAL YEARS, the prices agreed under CfDs by offshore wind are in no way viable.
It is worth noting, the £55/MWh figure, quoted as a reasonable price, is at 2012 prices, and works out at least £67/MWh at 2023 prices, and likely much higher.
This certainly does not equate to the “cheapest” claims made by the wind lobby, and government bureaucrats, and trumpeted by the lapdog mass media
.
Furthermore, CfD prices are inflation linked (the UK has an 8.5% inflation rate in 2023, near the highest in Europe)
Your green line should be adjusted for inflation
These INFLATION-ADJUSTED strike prices likely will be much greater than £80/MWh by the time the wind projects start producing electricity in a few years.
Why does your graph posted 0407 am that you said was for gas prices look the same as this graph for megawatt-hour?
They are both OfGEM plots, and yes, they are very similar. Gas is a huge cost component of electricity generation in GB. Here are the OfGEM plots as thumbnails:
Nick,
You should adjust your green line for the applicable inflation factor, USED BY THE GOVERNMENT, for each year, from the 2012 base year to 2023
That should be done for a base of £37.35/MWh which is unprofitable, and a base of £55.00/MWh, which apparently is profitable, “according to the source”
Nick,
Here is a government memo on how to apply inflation factors to base years.
The method likely is clear to bureaucrats, but it confused me no end.
Whoever thought up this scheme should be sent to Siberia for life at hard labor
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1036438/cfd4-allocation-budget-notice.pdf
How dare reality not support the free wind myth.
Dr. John Constable of the GWPF predicted, last year I think, that in ten to twenty years time there won’t be a wind turbine left standing.
But I’ll bet the UK landscape will still be dotted with concrete slabs.
There will still be some, it will take longer than that to tear them all down once they are abandoned.
Here we have it:“The spokesman added: “The offshore wind sector has delivered huge growth in the UK over the last decade but it has arrived at an inflection point.
If the entire fandango was a good as it was cracked up to be, such a thing should/could never have happened.
iow; It should be by now in ‘free self sustaining flight‘ or maybe even on a ‘glide slope‘
Inflections do not occur in such situations’
Thus it was built/launched on shit & lies from the very outset compounded by niavete, gullibility, low-to-zero education and political correctness
Just like sewage flowing into UK rivers,as it has done since forever, at some point someone is bound to say:
What’s that awful stink
But we have been told by the Labout Party in the UK that wind power is 9 times cheaper than gas power. So wind developers should be falling over themselves to get on the gravy train.
See: Carbon Brief: https://climatedebate.co.uk/is-wind-power-9-times-cheaper-than-gas/
Net Zero Watch have pointed out that onshore wind is more than twice the long-term cost of gas-fired power and the cost is going up. Offshore is between three and four times as expensive, and is at best only coming down slightly.
The simple term for Carbon Brief’s claim that “wind power is nine times cheaper than gas” is untrue.
If, as seems quite likely, Labour get into power then either they’ll bail these companies out or, amusingly, they might privatise these companies. Either way the howls of outrage will be deafening.
Privatise or nationalise?
(facepalm) Nationalise of course – thank you for the correction. I’ve looked at it half a dozen times and not flippin’ noticed. D’oh!
“the Telegraph”
Is much the same as the rest of the media, and it’s up for grabs.
“Lloyds Banking Group has effectively repossessed Telegraph Media Group and The Spectator over an outstanding debt owed by the Barclay family which is reported to total around £1bn.”
https://pressgazette.co.uk/publishers/telegraph-sale/
The bottom line remains the billpayer/taxpayer will stump up.
“Talking is a whole lot easier than doing. When the crunch comes, when a Labour cabinet faces the horribly tough choices that are going to confront them in power, will their fine words turn out to be little more than hot air? That’s a concern since Labour backtracked on its centrepiece green prosperity plan after aggressive attacks by critics from both outside the party and within.”
…
I have detected envy that the chequebook has been opened for what some see as Mr Miliband’s passion project.
https://www.theguardian.com/commentisfree/2023/jun/25/keir-starmer-retreat-green-spending-harm-economy-and-planet
With more u-turns than anyone could shake a stick at, who can say what Labour is about? The plot thickens
“Ed Miliband set to be sidelined over humiliating U-turns in Sir Keir Starmer’s shadow cabinet reshuffle
Mr Miliband is expected to be kept on as shadow secretary of state for climate change and net zero.
But Sir Keir is considering making it clear he will not be deciding the party’s energy policy, amid a backlash over his plans.
Earlier this month, Mr Miliband’s flagship plan to splurge £28billion on green projects a year if Labour is elected was massively watered down.”
https://www.thesun.co.uk/news/22803920/ed-miliband-sidelined-energy-keir-starmers-shadow-cabinet-reshuffle/
Starmer doesn’t really care about the lower orders, his aim is solely to hoover up as many votes as he can get.
“the Government makes up the difference.”
Not strictly true, Taxpayers make up the difference.
“However, if the reverse is true, the companies must pay money back to the Government.”
In that case Taxpayers are unlikely to see any benefit
Neither are really true. A CfD is a hedging agreement between the wind farm and the LCCC, a government owned company that is funded by a levy on generators. It is they who get money back when prices are high (and pay when it is low).
It worked as a kind of subsidy, but only if the strike price is maintained artificially high, which is certainly not happening now.
And when the CfD isn’t taken up by the renewables business, when times are good, they don’t need to pay anything back.
As has happened here because the incompetent UK government didn’t think of that and compel CfD compliance with the licence to operate.
“And when the CfD isn’t taken up by the renewables business”
A CfD is simply a commercial instrument where someone else takes over the risk (upside and down). You could say that of any commercial activity. If you don’t get someone else to take over your risk, you retain the upside and down.
‘A CfD is a hedging agreement between the wind farm and the LCCC…’
Nick,
Someone around here, perhaps you, needs to write a primer on how a CfD ‘works’ in the above context. I’m fairly knowledgable re. financial derivatives, but have some questions on this specific application:
I’m sure others would have many more questions, but I’d be grateful to hear your comments. Thanks.
“Someone around here, perhaps you, needs to write a primer on how a CfD ‘works’ in the above context”
Frank, I’m sure you know trhe basics of a CfD. It is an agreement whereby a counterparty agrees to take over the risk. You are guaranteed the strike price; if the sale is higher, the counterparty gets the profit; if not, the counterparty pays up.
Here the counterparty is the LCCC. It is a government owned company, which levies generators (and pays back); this is an inheritance from the ROC days, which was direct subsidy. It could create a subsidy by offering a higher strike price that the market would. There are auctions to try to keep the strike in line with market. But since the electricity market rose with the war, the strike prices have been too low, and whatever the subsidy intent may have been, at current prices the CfDs are a bad deal. They have the bizarre effect that the windfall profits from W&S end up in the pockets of other generators, who of course have been doing pretty well themselves.
So the main subsidy element now, and it isn’t much, is that there seems to be a generous provision for deferring. You can win a CfD at auction, but only take it up later if prices go down, and the deal looks better. Else never.
I don’t know how long you can defer, or what rules govern the length of contracts.
Thanks, that helps. One thing I would point out is that the ‘right to defer’ is a big deal. I’ll keep digging re. my other questions, as I think these mask a great of subsidy value, as well.
The stupidity and venality of the entire net zero ambition is become increasingly clear.
Who is going to take responsibility? This question gets more interesting the closer we get to the cliff edge (whatever form that eventually takes).
Both major parties in the UK are in it up to the neck. Electorally, neither party wants to have to say ‘we were absolutely stupidly wrong’.
Someone is going to have to, though, sometime soon. Who? Which party? Where in the electoral cycle?
Interesting times.
“”Who? Which party? “”
None of the above
Reality must kick in eventually. Politicians, as a general rule, work on the basis of ‘never apologise, never explain, move on’, at least all the time they are in office.
Glorious sunny day in the SE of England today, temperatures of 30C, with a strong breeze.
Renewables providing nearly 50% of the nations electricity (which is a small proportion of the country’s total energy needs) however, come 6pm tonight, someone switches the Sun off and the breeze will inevitably fall.
EDIT:
Sorry, wrong graph.
Apparently RAF Coningsby has recorded 32. something or other today – cue screams and shouts about ‘hottest day of the year’ etc.
“One source said: “People won’t invest if it doesn’t give you a decent return on equity. And presently, it’s hard to see how it can.””
You can see that contractors do their feasibility studies, but governments do not. The money to be made here is all stripped from taxpayers who are already tapped out. They too have supply chain and inflation costs on food and everything they need and these problems ,too, are 100% caused by inept governments.
This article reminds me of the book “The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century”
I think windmills have replaced the economic proxy of skyscrapers.
Building these windfarms was all about mining subsidies. Removing them will all be “somebody else’s problem”.
From the text of the above-quoted The Telegraph article:
“One source said: ‘People won’t invest if it doesn’t give you a decent return on equity. And presently, it’s hard to see how it can.’
Yeah, that’s pretty obvious . . . but governments, and their henchmen bureaucracies, freely hand out subsidies to doomed-to-fail green, renewable companies as if money grows on trees.
Those that don’t learn the lesson of Solyndra are doomed to repeat it (paraphrase of a more general adage).
Other news relating to the North Sea this week.
Italian oil company Eni, 30% owned by the State, has bought Neptune energy, one of the biggest producers of gas in the North Sea for £2.1bn ($2.6bn) whilst Norway’s Var Energi has bought the companies Norwegian assets for a further £1.8bn ($2.3bn). Var is majority owned by Eni.
Eni’s CEO said “Eni sees gas as a critical energy source in the global energy transition and is focused on increasing the share of its natural gas production to 60% by 2030”
I Newspaper 24th June
I see the UK government haven’t learned their lesson. If they are too green or woke to support the small oil companies from the UK all of the North Sea gas and oil profits will go to overseas companies. More support needed for the floundering UK oil and gas industry.
The government is too green and woke, and the opposition is even worse – two cheeks of the same backside, dumb and dumber.
How many of these projects would be “viable” without huge government subsidies and involvement?
Net zero.
I thought Texas was the Saudi Arabia of Wind. Look how that’s going for them.
An utter fantasy!
Over the years Scotland has been promised hundreds of thousands of jobs in the renewables industry.
To date there are around 2,000.
Those jobs do exist – in China. The increase has all been in manufacturing, which China has exploited – they currently employ around 5.4 million people in their renewables industry.
How many times and for how long have the power engineers commenting here predicted and warned that this was inevitable and guaranteed to happen?
Of course, by uneconomical, they mean lack of Govt subsidies and lucrative CfD contracts, with abused loopholes
No. As the article, and most of the commentary here failed to understand, it is the “lucrative” CfD contracts that they are “threatening” to pull out of. They are risk transfer contracts, and they just aren’t lucrative. Nothing to do with the underlying activity, which goes on regardless.
It’s you that’s failed to understand, Nick, it has very little to do with Cfd, which has been purely voluntary. As has happened in Germany and the EU before us, renewable energy generators have found that the price that they are expected to produce the electricity for and the amount of subsidies available have simply not kept pace with rising supply and maintenance costs – it is becoming less and less economical to produce renewable energy and the generator companies are being squeezed out of the market. Presumably they are trying to get the price of the electricity raised or the subsidies increased.
The headline here is
“Offshore Windfarms Threaten to Pull Out of Uneconomical Contracts”
What would those contracts be if not CfD?
The contracts to supply electricity at a pre-arranged price? Cfd is not a contract – it’s a purely voluntary scheme; a contract implies contractual obligations that are not part of Cfd.
“The offshore wind sector has delivered huge growth in the UK over the last decade but it has arrived at an inflection point.”
Is that because the turbines are getting close to having to be replaced? A huge cost that continually gets swept under the carpet…. Nothing to see here.
This whole stinking mess makes me sick. We can solve the whole thing buy removing all government money. The whole house of cards would collapse within a week. Build new fossil fuel and nuclear generators and remove all wind and solar from the grid.
The UK govt tried removing Solar subsidies then caved after all the wailing and screaming in the MSM that they were destroying the renewable energy sector. Should’ve stuck to their guns.
The renewable energy sector should be destroyed. Wind, solar and battery are little more than a redistribution scheme, redistribution from ordinary people to rich people. It needs to stop.
You can follow Paul Homewood of NotALotofPeopleKnowThat on twitter at (2) Notalotofpeopleknowthat (@Notalotofpeopl1) / Twitter
Wait, hold it a minute, it does not matter that the price will double. We don’t have any choice; we’re doing this to save the planet! Follow the USA business model: Simply print whatever amount of money you want. Problem solved. Obama told us electricity prices “would necessarily soar”. What’s all this quibbling. about?