In a delightfully illustrative episode of reality biting back, one of the UK’s largest offshore wind farm projects has ground to a halt, not because of a lack of wind, but due to an unabating gust of rising costs. The illustrious Swedish energy group, Vattenfall, has put a stop to work on its 1.4GW Norfolk Boreas site, following a 40% surge in project costs. Clearly, “going green” isn’t as financially breezy as some might have you believe.
Quoting Anna Borg, Vattenfall’s CEO:
“What we see today, it simply doesn’t make sense to continue this project.”
https://www.ft.com/content/f9d0f4f9-6d95-44a9-924b-d88627fd6485
This halt throws a monkey wrench into the UK’s fervent ambition to triple its offshore wind capacity by 2030 in order to decarbonize its electricity system. All this, while the cost efficiency and reliability of these grand projects remain questionable.
The Green Economy’s ‘Inconvenient Truth’
Interestingly, the UK government has been keen on flapping the wings of more wind power projects to meet its net-zero targets. However, with costs spiraling out of control, the move seems more like trying to fly into a headwind.
The fiasco stands as a testament to the impracticality of imprudently rushing towards renewable energy without addressing the inherent challenges and limitations of these technologies. Rising costs for equipment, supply chain disruptions, and the overarching reality of energy economics all play a part in this unfolding drama.
Sustainable or Unsustainable – That’s the Question
The defunct Norfolk Boreas was intended to be the kingpin of the country’s major offshore wind projects. Its aim? To power 1.5 million homes with up to 140 turbines. Yet, developers have acknowledged that projects with low locked-in electricity prices have turned uneconomical due to these escalating costs and disruptions.
This puts a spotlight on the term “sustainable.” While it sounds compelling in political speeches and looks impressive in policy documents, one is forced to question if these renewable energy ventures are truly sustainable – economically, that is.
The Green Mirage
In February, it was reported that Vattenfall, along with Denmark’s Ørsted and other wind farm developers, were seeking tax breaks or subsidies as a remedy to their fiscal ailments. Perhaps the mirage of “cheap” renewable energy is starting to dissipate, exposing the harsh desert of economic reality beneath.
Despite the British government’s past assurance of inflation-linked prices over a 15-year period, Kathryn Porter from Watt-Logic argues that these contracts ignored the “economic reality” of cost pressures that were already apparent. It seems the notion of ‘green at all costs’ is beginning to wilt under the scorching sun of real-world economics.
The race to net zero is leading us into a financial quicksand, sucking in vast resources for a future that will never materialize as envisaged.
As always, readers are welcome to share their views.
Source:
Financial Times Article
For more on intermittent wind and solar go to our ClimateTV page
The FT link has a fierce paywall; here is another story. The problem is an artificial one, the company signed a CfD with the LCCC that fixed a price that it now finds too low. That is why sensible firms are now dispensing with CfDs. Costs have gone up, but so have electricity prices since they took on the CfD. People starting from scratch can still do very well, as no doubt someone will do with this project. But if you have capped your return price, you can’t.
All so complicated Nick. 🙁
Why can’t electricity just be produced simply, efficiently, affordability as it used to be?
Power generation plants located at coal mine-heads > fed as fuel directly into constantly-spinning turbines = on-tap 24 x 7 x 365 cheap electricity for everyone.
And these days, scrubbers etc to minimize unsavory emissions.
What’s not to like?
They made a gamble on future prices, and lost.
They didn’t have to.
And Wind & Solar (subsidy) Farms aren’t viable without an ever increasing subsidy
CfD is the subsidy, when you win the bet. But for now, it is a losing proposition.
There should be absolutely no “betting” in such an absolute necessity.
Solid cola fired power.. you know its always there.
Bet on wind… you are bound to lose.
The subsidy is being paid for curtailment and other non productive times, like during periods of grid oversupply
Curtailment payment is just the discharge of a civil law obligation. It arises when a buyer contracts with a seller, and grid congestion prevents delivery. Both parties get compensated. It applies to any generator, FF or renewable.
The grid reasons that it is cheaper to allow a bit of congestion, with compensation, rather than pay the higher costs of congestion-proofing.
Curtailment can occur due to congestion – when grid repairs and/or squirrel attacks cause bottlenecks.
But for wind and solar PV – curtailment occurs because peak generation capacity is far, far greater than “average” electricity produced. Specifically 200% wind generation name plate capacity vs. annual capacity factor deliveries as compared to a fossil fuel/nuclear, 300% for solar PV.
UK has averaged a bit under 200 million GBP per year from 2019 to 2022 in wind constraint payments alone; 2023 is at 118 million GBP to date.
Of course, they can produce electricity which they can’t sell. But curtailment payments only happen when a successful sale was nullified by congestion.
Nitpick Nick has a PhD in bullshit.
What he calls a “successful sale” is when a bird shredding subsidy leech produces occasional electricity that is not needed and gets paid to not deliver it.
The question then becomes: does Stokes believe his own propaganda?
It’s his religion, karlomonte. He has eyes of faith.
You are discussing the relatively new concept of a generation market. What we are seeing is the downside of making the generators the important party in the provision of electricity. Prior generation was regulated to insure least cost and reliablity to the consumer. IOW, the consumer was the important party.
You are simply unable to show that putting generators in control of the provision is in the consumer’s best interest! The cost has increased dramatically and reliability has fallen (and is destined to get worse as FF is retired).
Wrong. Curtailment is subject to the rules of the balancing mechanism. National Grid can instruct curtailment if it is unable to procure sufficient curtailment bids to preserve grid operations. Bids are limited party auctions depending on the locations of grid constraints.
Under most currently operating CFDs a prolonged period (over 6 hours) of negative day ahead prices results in no CFD compensation being paid at all. Under AR4 and AR5 CFDs that will drop to any hour with negative prices. There is an economic incentive to curtail voluntarily when no compensation is paid.
National Grid has just woken up to the implications of this, which is leading to all manner of market distortions and the need for extensive standby capacity with rapid ramping capability to handle mass economic self curtailment.
Congestion????
Are you for real? You know nothing of how a reliable network was engineered in the past do you? Do you ever wonder why fossil fuel power plants were not allowed to be added wily nily? There is a reason you know!
The CFD is not the subsidy. It was always below cost, but the expectation was that the market would be rigged to make market prices profitable.
As soon as you gamble on wind… you will ALWAYS lose in the long run..
Subsidies will eventually run out.
Then the scam collapses.
In the long run we’re all dead. Many a criminal died wealthy and passed on their ill-gotten gains to their progeny. It looks like Dementia Joe will be an example of that. Solyndra is bankrupt but the cronies who ran it are not.
Nick,
Surely you remember pre-2000 conditions, when cheap, reliable coal fired electricity attracted industry and jobs to here?
What are we lacking now? New industry, new jobs making produce that society wants.
Pre-2000, engineers who knew their industry did not make mistakes of the magnitude that you want to dismiss here. Sadly, we are in an era of dishonesty in which people hide mistakes, accountability is diluted and apologies for harm to society are largely absent.
What, precisely, are you trying to defend? What good factors do you see that you can share with us? Mainly, I see a classic, large SNAFU.
Geoff S
Don’t forget FUBAR, which is rapidly becoming apparent to all logical thinking folks. Who are not in on the receiving end of the taxpayer funded subsidies. And tucked away in the dark by the politicians who don’t want to take responsibility for being not very bright. Clowns, each and every one of them.
“It’s always so attractive,” Milton Friedman said, “to be able to do good at somebody else’s expense.”
As I said above, I do not think they made a gamble on future prices, because delivering at CfD prices is optional. Its not a contractual commitment.
I think they had the option of just not delivering at their bid price, but delivering at market rates at the time.
But they havechosen not to, because costs have risen too high to make either the CfD price or the somewhat open market price too low to give a reliable return.
Have to see their business case to be sure, but I can’t see how else to explain why they don’t just build out, tear up the CfD, and rely on the market. Like the others are doing.
Or have I got this wrong, and their round of CfDs is in fact binding?
That’s the way I understand it.
Yes, except CfD are a non-binding nice to have fallback if everything else financially fails
“Or have I got this wrong, and their round of CfDs is in fact binding?”
As I understand it, the CfDs are binding for fifteen years, once you sign up. They couldn’t work otherwise. You don’t have to produce, but if you do, you have to sell through that arrangement.
I think you are putting the cart before the horse with your obsession with CfD’s – the ageeed price for electricity has stayed more or less the same but costs to build and maintain the wind turbines have increased beyond the point where it is economical to carry on. Reality has bitten – without spiralling subsidies, and without the ‘falling costs’ that were supposed to happen when more windfarms were built, these green boondoggles won’t get built.
Your understanding is not correct.
Wrong. They grant an option to guarantee the price for an unexpired portion of 15 years until the Specified Expiry Date. Once exercised, the option must be adhered to.
If the option is not exercised the wind farm gets whatever prices it sells at, which might be day ahead prices (since it cannot reasonably guarantee production much further ahead for any specific Settlement Period) or some longer term commercial PPA price or something else.
Thanks for reading, Nick.
Wind farms really do pay money back.
“Wind farms supported via ‘Contracts for Difference’ (CfDs) paid back £157million in Q4 2021”
A tiny fraction of the subsidies paid.
You know they are still one big massive CON. !!
Yep – billions paid out, millions returned.
Wow!! £157m paid back out of taxpayers cash subsidy of £12bn. As ever with Stokes, his numbers never add up.
ah, but the gold rush was on- they didn’t want to miss it
There was relatively little gamble. They signed up to a low strike price put option that leaves them effectively exposed to market prices that they now think they are not going to be competitive with because of the rise in costs.
Wind is not competitive.
Wonder what happened to Nick’s low fuel price being the saving grace of W&S?
How fair of you. Not.
Only the investors wanting to get rich are allowed to decide what they will produce for an unknown amount of payment (citizen taxes). An amount that will be decided later by the investors…
Those government types sure like to cut hard deals that stiff the citizens.
Government is conducting normal business.
That is, government publishes a request for bids on a proposal.
Slick willies come in, undercut other bidder’s bids, expecting to reap all of the substantial renewable energy rewards.
Later they will file requests for the government pick up some of the increased prices on material, labor, lack of abundance, etc.
Nope!
The slick willies decide that there is a snowball in hell’s chance that government will agree to swallow all of the increases, so they cut their losses and refuse to complete the contract.
That is a willfully broken contract.
Taken to court in the USA, the slick willies almost always lose the case. Even when they have a fine print escape clause. Honest judges tend to find such clauses deceptive and they’re hard to convince.
Trouble is, slick willie wind turbine manufacturer, delivery and transporter using those wicked fossil fuels, construction, installer and implementation may be hoping government sits and plays Jack Horner in his corner and forgets to call the lawyers?
Or they an inside flush in their hand.
The emissions are not so unsavoury. The sulphur (SOx) removed is used to make plasterboard for building and also the gypsum produced can be used for producing fertilisers.
As someone who spent many years involved in the fertiliser industry, I’m also aware that there was little need for Sulphur in fertilisers until TBTB insisted on all power station emissions being scrubbed, which involved the quarrying of huge quantities of limestone to feed the Flue-Gas Desulphurisation Units, much of which was taken from areas of great natural beauty. On that subject, whatever happened to the “acid rain” scare? I’m pretty sure that it turned out to be yet another hoax.
Sadly, all the trees in the USA melted.
Oh! Hang on, they didn’t, they were chopped down and shipped across the Atlantic for the Drax power station to burn.
Of course it was a con, acid rain was a theoretical construct from someone whose chemistry was rather shaky. Water does not easily react with SO2 to produce H2SO3, sulphurous acid. Someone thought it might but entropy thought differently. Then others tried to invent CO2 reacting with water to produce carbonic acid, again not a particularly fruitful reaction otherwise our lungs would be full of the stuff, probably somewhat detrimentally. Both of the inputs dissolve in water, but that is not a chemical reaction. All of the cited reactions can be made to take place but the conditions are not simple, heat, pressure and catalysts come to mind, none of which is much available in the atmosphere.
no, only weed trees coming from well managed forests in the world’s “wood basket”, the American southeast- on land that was once cotton fields worked by slaves- much better having managed forests giving jobs to descendants of those slaves
back before they chipped wood for Drax, they just piled up the wood trees and slash and burned it in huge open air fires- which certainly cause far more real air pollution than coming out of the smokestacks at Drax
No life of any kind is POSSIBLE without sufficient CO2.
The present level of 416 ppm is grossly insufficient, as proven by plant growth in greenhouses
Any discussion regarding CO2/kWh of renewables is FOOLISHLY PLAYING YOUR HAND IN THEIR GAME, an absolute no no tactic in bridge, and other arguments
Solar Panels Are Much More Carbon-Intensive Than Experts are Willing to Admit
https://www.windtaskforce.org/profiles/blogs/solar-panels-are-more-carbon-intensive-than-experts-admit
.
The author makes a mistake of focussing on CO2/kWh.
The much more important issue is the vey high cost of solar/kWh, on an A-to-Z basis, and lifetime basis, from mining materials, to operating, to hazardous landfill.
Each step has costs/kWh and CO2/kWh
Plus there is the cost/kWh and CO2/kWh of expanding/reinforcing the distribution and high voltage grids to connect the distributed solar systems
Plus there is the cost/kWh and CO2/kWh of requiring a fleet of quick-reacting power plants, usually gas-fired, combined-cycle, gas-turbine power plants, CCGTs, to counteract the ups an downs of solar output, especially:
1) during variable cloudiness, and
2) when covered with snow and ice, and
3) during foggy conditions. and
4) during its total absence from late afternoon/early evening to mid-morning the next day.
Without that fleet of counteracting power plants wind and solar could not even be fed into the grid
Why get into the weeds, such as with “how much CO2/kWh”, etc.
Those are side issues that distract from the basic issue, i.e., wind and solar cannot replace conventional generation at scale.
EXCERPT
By C. P. Colum and Lea Booth in collaboration with The Blind Spot.
Last August, in an amalgamation of ‘The Green New Deal’ meets ‘Build Back Better’, President Joe Biden’s Inflation Reduction Act gifted the renewables industry with billions of dollars worth of taxpayer-funded subsidies.
The Biden administration announced on October 13, 2021, it will subsidize the development of up to seven offshore wind systems (never call them farms) on the US East and West coasts, and in the Gulf of Mexico; a total of about 30,000 MW of offshore wind by 2030.
https://www.windtaskforce.org/profiles/blogs/biden-30-000-mw-of-offshore-wind-systems-by-2030-a-total-fantasy
This is part of the “Inflation Reduction Act”, which CBO estimated at $391 billion, but Goldman Sachs estimated at $1.2 trillion
https://www.windtaskforce.org/profiles/blogs/biden-s-green-energy-policy-may-end-in-tears-1
What few backing the bill realized was that the largest beneficiary would likely be China due to its expansive grip on the global solar photovoltaic (PV) industry.
Worse than that, it might end up misdirecting the world’s clean energy efforts into dirtier than appreciated energy technologies because of the China’s’s ongoing dependence on coal-fired energy.
Information unearthed by Environmental Progress points to a gaping oversight in how the figures influencing government net zero policy and investments in solar worldwide are compiled and collated, due to the difficulty of collecting accurate information out of China, especially for the purification processes used to create silicon wafers.
Nick, Vattenfall are a manufacturing company, making physical goods, not a hedge fund. This is not an issue of financial products and gaming the system. It’s about the price of real things in the real world. Ultimately it’s about the price of irrational phobia of the benign gas carbon dioxide.
“The problem is an artificial one,”
“People starting from scratch can still do very well,”
Nick, for once, I agree with you !!!
To give wind investors the returns they have come to know & love; to cover up increasedcosts, you just need to …
increase the price of ‘green energy’, ( but continue to tell the public that wind is the cheapest form of energy )
or
increase the subsidies (& blame outside influences … Wars, Weather, Brexit, Immigration)
although the number of gullible fools is falling, due to sites like this !!
Nick,
I believe the latest Hornsea wind farm had a low CfD but on completion simply ignored the contract price and sold at market price. The contrcat is very poorly constructed and companies can simply ignore them.
It has been known for a long time that these contract bids were far below the real cost even then and cost have surged now. Ironically some of it due to the very high electrical cost of going for large scale renewables.
“simply ignored the contract price”
As I understand, they can do that, but they lose the benefit of a future underpinned price. Which would be a loose contract.
“ Ironically some of it due to the very high electrical cost of going for large scale renewables.”
On the contrary, Vattenfall blames high gas prices:
“But since winning the auction, Vattenfall and others have warned that costs have increased far too fast for these projects to be economical anymore.
“Costs of wind farms have been driven up by ongoing high gas prices causing supply chain inflation, just like for other industries,” Ms Ralston said.
“If the government gets the policy wrong on the current round of renewables auctions and doesn’t keep pace with increasing costs, the UK could end up even more reliant on foreign gas, leaving households on the hook with higher bills.
“Doubling down on renewables, which remain much cheaper than gas, means in future price spikes we’ll be less exposed.””
Another way of putting it is that gas shortage has forced up electricity prices, so it is not better for them to go to another project without CfD.
As I understand, they can do that, but they lose the benefit of a future underpinned price. Which would be a loose contract.
Yes, but if they cannot justify doing it without an underpinned price, what it shows is that wind is not a cost effective solution.
“if they cannot justify doing it without an underpinned price”
The price is pinned, not underpinned. And that is the problem. They got it wrong. Someone will do it without CfD (ie pinning).
What needs explanation is why they are not doing it themselves without CfD, if its so great. And why are the next round bidders worried about CfD prices if they have a viable alternative of just selling at market?
I think its because there is no business case to be made for installing wind and selling at current and predicted future wholesale prices.
If I am right, there will not be a new generation who will jump to do it without CfD. They will not do it for the same reason Vattenfall is dropping out of this one. Because they will not be able to put together an adequate business case. Because costs are rising, not falling as forecast, and they are too high to allow adequate risk adjusted returns.
Even with the massive subsidies wind is getting. Which Paul Homewood has estimated at about 400 per UK household.
By the way ‘underpinning’ was your expression, I just quoted it. I agree that its a little misleading since the point of CfD is to stablize around the CfD price.
Financially, its an option. From a regulatory point of view its a backhanded way of reaching the same result as Rate of Return regulation as practiced in the US with the Public Utilities Commissions. With the difference that CfD is not a binding contract, but an option to enter such a contract if you choose to.
“What needs explanation is why they are not doing it themselves without CfD, if its so great.”
Many do. They will usually enter the CfD auction (why not?). But they don’t have to sign up.
The question is why Vattenfall are not doing it in this way in this case. They have the alternative of not entering the CfD and then just selling what they produce on the open market.
Why are they not doing that? Why do they choose to withdraw from the project and take the write-off instead? They must have a proper cash flow case which shows that taking the writeoff is the best solution
The explanation seems to be that costs have risen so that this is not a financially viable strategy.
If they cannot sell profitably at market that suggests, contrary to what we keep being told, that wind is not cost effective.
And that is before you consider, at a national level, all the subsidies and compulsory purchase regulations.
Who is this many? Every wind farm built in the UK is signed up to one scheme or another.
Thanks for reading, Nick.
UK Wholesale Electricity Market
Bilateral tradingBilateral electricity trading refers to contracts between generators and suppliers for the purchase of electricity. Usually, bilateral trading of electricity is framed by some sort of master contract for a set period that establishes overarching trading conditions. Individual trading contracts then set the amounts of electricity to be traded and the trading price.
To avoid market imbalances, generators inform the system operator (National Grid) of the volume of electricity traded before delivery.
Market tradingElectricity supply and demand is mostly matched on two exchanges when it comes to electricity delivered on the same day or the next day (the spot market): APX and N2EX. In this case, an auction process matches offers from generators (certain quantities of electricity at a certain price) and bids from suppliers or large consumers (expected consumption).
Once more, avoiding market imbalances and grid capacity requires the network operator (National Grid) to be aware of traded volumes of electricity.
Long-term tradingLong-term trading of electricity mostly happens through electricity brokers. There are nine members of the London Energy Brokers’ Association: BGC Partners, Evolution Markets Ltd, GFI Group Inc, ICAP plc, Marex Spectron Group Ltd, PVM Oil Associates, Tradition Financial Services Ltd, Tullett Prebon Inc, Griffin Markets Limited).
Long-term electricity trading prices are established less according to supply and demand than forecast market development: availability and cost of supply, forecast demand, etc.
——-
They couldn’t get it right? More likely it’s a play for more subsidies
That just describes private contract arrangements. This is about CfDs, with the LCCC.
No it is not just about CfDs. It is about total costs and and total income. Subsidies were initially sold to the public by telling everyone they were needed to let W&S get a foothold but they would ultimately not be needed since free sun and wind would prevail in being the lowest cost generation as compared to FF fueled power generation.
Well, FF generation is disappearing due to must buy W&S. Subsidies are going away. And guess what? All of a sudden, costs can’t be covered! The problem is capacity percents. FF plants operated at 70% – 90%. W&S can only run at 20% – 30%. Free wind does not cover costs when the wind doesn’t blow at max velocities. Solar doesn’t work at all when the sun doesn’t shine. And guess what. FF baseline plants ran continuously supplying revenue continuously.
Is it any wonder that the chickens are coming home to roost?
Nick, your arguments all point to the fact that W&S will never be as efficient as FF. Consequently, W&S electricity will never meet the your prediction of being the cheapest form of electricity generation.
If high gas prices are the real problem why don’t they build turbines using only wind and solar power?
Maybe it really has something to do with the Chinese made wind turbines – which are currently the most powerful – undercutting the bloated EU manufacturers, and shattering the illusion of ‘high-paid green jobs’.
And another thing Nick – if historically high electricity prices are not enough to make a wind farm viable, yet nuclear is going through a renaissance, what does that tell us about the claim that wind power is one of the cheapest? When it can’t even compete with nuclear, even without batteries?
“if historically high electricity prices are not enough to make a wind farm viable,“
You’re not getting it. Current prices would make it viable. The problem is that Vattenfall does not have access to them. They have committed to a fixed price much lower than current prices.
So Nick-pick is saying they should be charging much higher prices.
And here I was thinking the wind shill were saying wind electricity was so cheap. 😉
But it needs a guaranteed higher price. D’OH !!
Poor Nick… You have yet again removed one foot, just to replace it with the other.
A pitiful attempt at a contortionist distraction. !
No Nick – you are the one not getting it. A windfarm is in direct competition with other windfarms and other forms of electricity generation – if gas, nuclear or hydro can produce enough energy at a cheaper price then those windfarms will go out of business. If they cannot produce lower priced electricity with the costs they have then it’s no good you railing against the market price of electricity – it just won’t work.
Or if a proposed wind farm can not be built to provide competitively priced electricity it WILL NOT BE BUILT.
The liberal mind does amaze.
I’m not railing about the current price. Just pointing out that Vattenfall’s problem is that they have committed to a CfD which gives them a much lower price, so they now prefer to put their resources into other projects.
Are you sure they have committed already? Usually companies only decide to commit when their installation comes on stream. This is why in the last year the new wind farms have not committed.
The BBC says so.
“The BBC says so.”
Now we know Nick is off in la-la-land !
Is that true, or did you hear it on the BBC?
The BBC is absolutely not to be trusted as a reliable source of information on wind energy. They persist in putting out misleading propaganda, and delay correcting their inaccuracies if they correct them at all.
In this case it is quite clear that Vattenfall have not committed to selling at their indexed CFD price at all: they can’t even do that until each phase of the wind farm is commissioned anyway.
“Is that true, or did you hear it on the BBC?”
Well, I heard it from you now.
You didn’t read very carefully, did you?
To become bound by the CFD price, they have to issue a formal Start Date Notice which can only be done once the wind farm section is commissioned – but which does not ahve to be done at all for an AR4 wind farm.
The wind farm hasn’t even commenced construction, let alone been commissioned. They only commit to CFD payments when the Start Date Notice is issued. Until then, they are on market prices. If they don’t issue a Start Date Notice they stay on market prices and there is no commitment to CFD prices.
According to your reading of the BBC they are claiming that the contract reads entirely differently. So we have yet another case of you heard it on the BBC and it isn’t true.
“The BBC is absolutely not to be trusted as a reliable source of information on wind energy”
The BBC is absolutely to be trusted on a matter like this. Apart from being professional journalists, there is the factor that they are quoting Vattenfall on a matter that is of very great legal significance to them. If they have misquoted, much hell will be raised.
No, the BBC is absolutely not to be trusted as a reliable source of information on wind energy. They have no reporters with energy industry experience, so they simply spew false propaganda. Now that is something where they do have expertise.
The complete nonsense quotes from ECIU about high gas prices being to blame should never have been reported. No such factor is mentioned by more informed journalists. For example Reuters
https://www.reuters.com/sustainability/vattenfall-halts-project-warns-uk-offshore-wind-targets-doubt-2023-07-20/
They make clear that it is the rise in costs that makes the project unviable. They report that the CFD is not sufficient backing to secure financing. That was always the case. What has changed is that the outlook for market prices is no longer underpinned by the spike in gas prices of last year, so the project now is not financeable at market prices. It is the lower gas prices that put the extra nail in the coffin.
Reuters also make clear that Vattenfall considers that much more generous CFD terms are needed if this project is to be resurrected, and likewise for the adjoining Vanguard projects.
If you want even more detail read the New Civil Engineer.
“They have no reporters with energy industry experience”
Whether or not that is true, the fact is that the BBC contacted the company and reported what they said. Vattenfall is a big player, and is not going to allow the BBC to misquote them on such a critical matter.
Well michel, there’s commitment, and then there’s “commitment”.
The former is the enactment of putting your money down as you promised, while the latter is what the signatories to the Paris climate fund do – pretend they never meant what they were reported to have promised.
Bad business decision! FF generation was always added in the past under similar constraints. Do you think regulators allowed generators to add plants without declaring what rates would be collected.
Yes, of course. Why do you think they have an auction market?
You didn’t address the issue I raised. Were FF power plants added without knowing what the revenues received would be? I think you’ll find that the FF plants were built knowing what the accepted rates would be.
Regardless of the reason, offshore wind is going to have a hard time competing! What! That must be heresy. There goes the claim that free fuel will win in the end!
You have suddenly stopped using free fuel as a reason for W&S succeeding over FF. Why?
You’re not getting it. They haven’t made a price commitment: the have a valueless option for support at below cost price, and feel unable to compete at market prices in the light of rising costs.
Thanks for reading, Nick.
No, if they do develop and sell, the sales will be bound by the terms of the CfD. Vattenfall itself struggles mightily to put a positive spin on the matter, but:
“This development affects future profitability and means that Vattenfall makes an impairment for wind power in Norfolk, UK, with a total impact on earnings of SEK 5.5 billion. We have decided to stop the development of Norfolk Boreas in its current form and not take an investment decision now due to mentioned factors, which triggers the impairment.”
What is the “impairment” if not a binding commitment to sell at CfD prices?
If they could sell at market prices, the “impairment” wouldn’t matter.
No. wrong. The terms allow them not to commence the CFD. Get that into your thick head. The impairment is for costs already incurred in applying for the wind farm, the seabed lease, the surveys of the seabed, the onshore work in acquiring rights of way, evaluation of wind field and selection of turbines, possibly a downpayment towards installation vessel charter etc. – and an allowance for the fact that they are now “wallied” in applying for further projects as a result of pulling out of this one: that is the punishment prescribed by the terms. The impairment is for costs already incurred or committed that are not recoverable as the project is not viable on a market price basis, let alone on a below cost CFD basis.
The global price of Natural gas is at roughly the same price it was 2015-2021 (April) and has been the whole of 2023 so how is that a problem? Why should it be keeping the price of electricity high as it’s a year since the price of natural gas peaked. If the UK gas generators are paying high prices for gas then their purchasing departments need to become claosely aquainted with lampposts and rope.
Any producer of cheap wind and solar electricity had 18 months to make hay while the cost of oil and gas was high.
The current oil price is irrelevant as the UK hasn’t used oil to generate electricity for a decade
“how is that a problem?”
UK gas generators do not pay the global price. They pay the price of gas landed in the UK. And that has fallen, but not to where it was:
Not much difference there Nick, and you have to take our 10% inflation on the previous figures from 2021 and back. The fundamental problem is that the market was fiddled with in the first place to make wind power look reasonable, but the wind experience needs higher prices than gas, or even Drax can manage. Two farces happening at once, who would have thought it?
What gas shortage? There’s no gas shortage here. Wasn’t that all self-inflicted, as in “you cannot build widgets”, thus eventually there’s a widget shortage? Don’t call that a problem caused by the widget makers.
The “return” on CfD for Q42021 during the “gas crisis”?? Ukraine wasn’t until 2022. What gas crisis in 2021?
“gas shortage has forced up electricity prices”
No Nick..
It is the infection and erratic behaviour of wind and solar that has forced up electricity prices.
And the anti-science anti-CO2 agenda that penalises the dispatchable reliability of coal.
If we still had adequate coal fired power, there would be absolutely no need for any of these idiotic scam schemes, and prices would be considerably lower.
Ms Ralston is a spokeperson for ECIU, a green propaganda think tank that has no understanding of the real business world at all. It is run by ex BBC reporter and green shill Richard Black. It has nothing to do with Vattenfall, who do not blame high gas prices (especially since gas prices have now fallen so much as to make wind uncompetitive with CCGT).
The CFD bid was at below cost price to secure the business, knowing that the price could be discarded in favour of market prices. In the light of rising costs of wind farms and finance they are no longer guaranteed to be profitable at market prices, especially as wind will cannabalise its market.
Thanks for reading, Nick.
Your attempt to pass off comments from the ignorant ECIU as coming from Vattenfall was quite shameful.
Yes, my impression too. Nick keeps saying or implying that CfD is a bet on a given price that you then have to deliver on. But I don’t believe it is, in financial terms its a somewhat complicated option that you have been granted at no cost. The criticism of it is that its a no risk for the bidder. If the price falls, exercise the CfD option. If it rises, don’t, and sell at market.
But if costs rise so much that you cannot make money at market, well then, as Vattenfall has done, you have to punt. Ie, walk away. I think that was Vattenfall’s problem.
Love to see their business cases, the original and the one for walking. If they had adequately analyzed possible price and cost movements and their impacts I suspect it would have blown up. But the question is, given it has, what does this tell us about the viability of wind? This could be the point at which the sleeping elephant wakes up and starts to trample around the room.
“ If the price falls, exercise the CfD option. If it rises, don’t, and sell at market.”
That’s not how a CfD works. They were committed for fifteen years to receive only £37.35 per megawatt hour, possibly inflation linked, but inadequately so. In that time, surplus has to be paid to the LCCC, which will also make up deficit.
“ if costs rise so much that you cannot make money at market“
They could, because market rose, but they don’t have that choice. They only get £37.35 per MWh.
The business case goes like this. We don’t know how prices will go; we think we can control our costs. So if the LCCC will offer us a fixed price that will cover our costs with profit, the investment is safe.
But they couldn’t control their costs.
So you are saying wind electricity COSTS MUCH MORE.
Ok.. we all know that !
How do you manage both feet at the same time ?
He gets a headache when his toes hit his brain!
Nick: “But they couldn’t control their costs.”, actually they did control their costs and LOSSES, by making the decision NOT to build the wind farm. Businesses make these decisions daily, why are renewables different?
OH, subsidies, price guarantees, and guaranteed payments without production, makes the difference. Without them or with them being reduced they can not produce competitively priced products.
Nick’s liberal mind does amaze.
Do you have a link showing they have actually signed up to a CfD price commitment (as opposed to winning the original CfD bid process)?
Several other new wind suppliers have been reported to have used the bid process to get the contract, but then delayed or abandoned committing to the CfD pricing contract itself.
Do you have a source for the assumption that Vattenfall is already committed to 15 years worth of CfD pricing.
If that is so, One they were idiots and their planning and investment appraisal department is either missing or incompetent. Two, they indeed probably now have no financilly viable alternative but to walk.
“a link showing they have actually signed up to a CfD price commitment”
The BBC link I gave in my first comment:
“Market conditions had deteriorated since it signed a contract to fix the price of electricity it sells for 15 years, the company said.“
This is from a Moody’s credit assessment report –
, in 2022, it was awarded a 15-year Contract for Difference for Norfolk Boreas (1,800 MW), where onshore construction is set to begin in 2023.
https://group.vattenfall.com/siteassets/corporate/investors/credit_ratings/moodys/credit_opinion-vattenfall-ab-update-to-credit-06jul2023.pdf
The CFDs cover 416MW 505MW and 475MW – a total of 1,396MW. Moody’s due diligence is very poor.
They actually get £45perMWh because the £37.35 was in 2012 prices. But with the problems all wind turbine manufacturers in Europe are facing at the moment the future for the industry is not looking very bright.
By “problems” I mean all 5 of Europe’s wind turbine manufacturers have been operating at a loss for the last 30 months or so.
Things are getting interesting re offshore wind. The German government recently held its largest offshore wind auction ever and awarded 7GW of contracts for 3 sites of 2GW in the North Sea and 1 site of IGW in the Baltic.
The auction design required project developers to pay for the right to build their wind farms. This uncapped negative bidding means costs will have to be passed on to consumers and the wind turbine supply chain which is already struggling.
There is a further problem “Offshore foundation manufacturers and installation vessels are fully booked for many years. The wind industry is having to buy power cables, gear boxes and even steel towers from China”
Wind Europe press release 12 July 2023 ‘German offshore auctions award 7GW of new wind:future auctions must avoid negative bidding’ and 14 June 2023 ‘NZIA: act now or Europe’s wind turbines will be made in China’
https://windeurope.org/newsroom/
“The problem is an artificial one,”
Yes Nick.. we KNOW the “climate problem” is totally artificial.
Even you should be well aware of that by now.
You forget, Nick, people are fed up of green
The drivers’ revolt
Uxbridge voters have given a two-fingered salute to the punishing green agenda.
https://www.spiked-online.com/2023/07/21/the-drivers-revolt/
Oh dear
Judging by the swings in the other two byelections Labour will struggle anywhere there is a green labour council inflicting green nonsense on the population, but may win back a lot of disillusioned Red Wall seats.
We may have a hung parliament which would be interesting if it reflected the mood of the nation which it won’t because they’re all green in the middle.
If Fishy Rishi can actually see the writing on the wall and rows back the net zero nonsense and can get a little traction on the illegal immigrants, then the Conservatives might scrape over the line.
I don’t think he can see the wall, let alone the writing on it.
Don’t think this is a correct account or a valid explanation.
First, they don’t have to sign a CfD. During the recent peak in gas prices wind farm operators newly coming on line declined to. The reason was that peak electricity prices were way over the CfD prices they had bid. Vattenfall had the option of not signing up to their CfD and just generating and selling. They had not “capped their return price” at all.
But they chose not to take that option and sell at market prices. Why not?
The great criticism of the UK’s CfD program is that it is voluntary. Companies bid under it as part of the approval process, but once they have got the contract they do not have to deliver. So Vattenfall appears to have bid (from the FT story) £37.35 per megawatt hour at 2012 prices.
If you look at UK wholesale prices, this was obviously far too low (though I am not sure exactly where 2012 prices would fit on these charts).
https://www.catalyst-commercial.co.uk/wholesale-electricity-prices/
What about the next set of bids? Again, from the FT:
I don’t have enough specific information to be sure, but it looks like what has happened is that Vattenfall got overconfident and gamed the CfD scheme – which is indeed a scandal, because companies can bid and win with no obligation to deliver at their bid price.
Having got the contract, they were confronted with wholesale prices which were well over what they had bid as their maximum, so the natural response was to drop out of the CfD guarantee.
But that is only a viable strategy if you can make money at the unregulated market price. That problem, the problem that the market prices fluctuate and may be too low for operators to make a return, is what led to the CfD system in the first place. Its aim was to protect wind farm operators and UK customers from market fluctuations and give the operators guaranteed returns and customers guaranteed prices. The operators were protected from a price collapse, the customers from a price boom.
I suspect that what Vattenfall has now discovered and acted on is that the promised fall in wind costs has not happened. On the contrary, costs have soared. The result is that not only can they not make a return under the CfD (which must have been known at the time of the bids). They also cannot make a return, or a safe enough one, at market prices.
The other bidders in the next round are confronted with the same problem. They too may be tempted to bid at the CfD rate of £44/MWh in 2012 prices and then not trigger the CfD. But I suspect the underlying problem is that wind is not an economically viable technology for generation at grid scale at current prices, and that costs are not coming down, but are rising.
Last winter seasonal prices (from my link above) were about £225/MWh. They then fell to between £100 and £150. I suspect costs have risen enough that no-one can prudently count on making a return from wind at these prices.
If you are looking at the whole picture, you also have to take account of the fact that intermittency adaptation is not included in the CfD prices. That, for a buyer, comes on top. I suspect that £44.MWh is far from being too low in market terms, it may be about what an unpredictably intermittent supply is worth to a wholesale buyer. And only worth that given purchase obligations and government subsidies. Deregulate the market, and wind would vanish.
So I suspect what we are seeing in this episode is yet more evidence that wind, particularly offshore wind, is not an economically viable technology in this application.
CAUTION – This is how it looks to me from what I have read. But I’m not a professional in this field. If I’ve got this wrong, someone who is, please correct me.
“Vattenfall had the option of not signing up to their CfD and just generating and selling.”
Yes. But they did sign up.
“once they have got the contract they do not have to deliver”
They don’t have to put electricity on the market. But if they do, returns will be allocated per the CfD.
“so the natural response was to drop out of the CfD guarantee“
Yes. But the only way to do that is to not generate at all. At Boreas. I think what it means is that they divert their resources into projects elsewhere that don’t have a CfD (or if so, a better one).
“unpredictably intermittent supply is worth to a wholesale buyer”
A wholesale buyer buys in 30 minute blocks (I think it is less now).
“And only worth that given purchase obligations and government subsidies”
There is no ROC for projects since 2017 in UK. The only subsidy is the CfD. If you don’t take that, you are on your own. And that decision is being made.
“And that decision is being made.”
Oh dear.
Nick is now saying that wind CANNOT EXIST without subsidies.
We have been telling him that for ages.
Glad he has finally caught up with reality.
No. I’m saying that people choose to produce it without subsidies. The only one available is a CfD, which has a sting.
So, you ADMIT they cannot exist without subsidies.
They can go with the CON that is CfDs.. or else.
Thanks.
But we knew that already.
People do not choose to produce it without subsidies – the subsidies were reduced around 2019 when costs were lower than electricity prices. Now costs have increased but the price has stayed much the same so cheaper production methods will be chosen and windfarms will go bankrupt, market forces at work. Climate enthusiasts have been saying for a while that wind is the cheapest form of electricity production, that it will compete with other forms of energy production and that costs continue to tumble. Now we can see that it is simply not true and windfarms are not viable without massive financial input.
The government are busy trying to cobble together other subsidy mechanisms. There’s REMA, which will involve a very expensive buyout of the older contracts if it is to be applied universally – and it is hard to see how that can be avoided, as it involves a complete redesign of the market and the contracts have compensation for change in law provisions that are pretty watertight. Then there’s the “non profit factors CFD” top up that the government recently consulted on, which is really just a further under the table subsidy. They have already managed to engineer a sharp increase in the value of REGOs by ceasing accepting Guarantees of Origin from outside the UK – forcing the latest auction prices to £10/MWh, which is substantial bunce. There are of course plenty of other subsidies in the form of not charging the cost to the grid of providing the connection to demand, and from carbon taxes on competitor fossil fuels which are a form of tariff protection.
Thanks for reading, Nick
One of these days you will learn something.
You say “But they did sign up”.
I can’t find anything saying they have signed up. They did win the bid, but that leaves them with the option of either signing up or selling at market, and I can’t find any source reporting that they signed up to deliver at CfD prices.
Again, the BBC link I gave said so:
“The Swedish energy giant Vattenfall is to shut down development of the Norfolk Boreas site, off the Norfolk coast.
Market conditions had deteriorated since it signed a contract to fix the price of electricity it sells for 15 years, the company said.
“
“the BBC link”
Oh dear.. there is your first problem !
And you just compound it from there.
Yep. When they were awarded the CFD and signed the contract, prices were at their peak last summer. Since then, they have fallen sharply, and evidently Vattenfall feel that the prices available under a PPA are not adequate to fund the project. It’s uncompetitive with CCGT, basically. Of course, the CFD was only an option at an unprofitable price that they thought they could safely ignore: their priority was to bid low to secure the business which they thought was going to be profitable at market prices. They now find that is not the case, because prices have dropped and their costs have soared.
They are not required to commence the CFD for payment under the terms of the contract. That is purely optional.
Some projects started to collect ROCs much later than that. The Kincardine Offshore floating wind scheme earning 3.5ROC/MWh didn’t get commissioned until September 2021 for instance. ROCs still account for over 50% of wind production.
Michel, your understanding of the CfDs is correct. Going by his responses, Nick Stokes simply doesn’t understand how the bidding process and wind market works in Britain.
Nick just makes up his “understanding” as he goes… on basically everything.
No rational thought required.
And is at least 97% wrong !
So if companies can treat the CfD as optional, why did they pay back to the LCCC. From link above
“Wind farms supported via ‘Contracts for Difference’ (CfDs) paid back £157million in Q4 2021”
And a lot more in subsequent quarters.
Or as the BBC link I cited earlier said:
“This means that if electricity prices are below the promised price then companies get a subsidy to make up the difference.
Equally, if prices rise above that level then they have to pay back their additional gains.”
Nick, think of it as a Wind Fall Profit Tax, paying for previously collected price guarantees. Taxpayers, suppliers and electricity payers should be pleased with this process. Where are the losers?
Only companies that have commenced their CFDs by issuing a Start Date Notice to LCCC having fully commissioned their wind farms (a Condition Precedent to being able to commence the CFD) are making or receiving payments under the scheme. Under the terms that apply up to AR4 the issue of a Start Date Notice is an option for the wind farm – they are not compelled to issue one by the contract terms. Early CFDs on lavish strike prices were of course commenced. Recent ones at sub £100/MWh current strike prices have not been, despite being fully commissioned. Triton Knoll at £107.19/MWh is the lowest price CFD in payment for an offshore wind farm.
This chart shows the quarterly net payments to and from the LCCC by various CFD technology groups. You will see that refunds to consumers only persisted for the price spike last year, and ever since the 4th quarter, offshore wind has been getting CFD subsidies again. The 3rd quarter this year is of course only about 12 days in this chart so far, so the quarterly rate is about £0.4bn, which is back to early 2021 levels of subsidy.
“Under the terms that apply up to AR4 the issue of a Start Date Notice is an option for the wind farm – they are not compelled to issue one by the contract terms.”
You keep dancing around what Vattenfall is obligated to. You keep referring to “up to AR4”, but Boreas is AR4. You say that they can sell on market up to issuing Start Date notice, but they won’t have any to produce. You say they are not compelled to issue one, but can they then sell on market (and keep all the proceeds)?
LCCC seems quite firm on that:
“. As a private law contract, the CfD cannot be unilaterally changed once it has been signed.“
I am very clear about what Vattenfall are not obligated to do. Under AR4 terms, they are not obligated to commence the CFD. I have also explained that the penalty for withdrawing from the contract to build the wind farm is that they are supposed to be excluded from bidding for other projects for a period. No skin off Vattenfall while the economics remain poor.
Why do you get a notion that a completed wind farm won’t be producing just because its Start Date Notice (just a formal notice confirming that all Conditions Precedent have been met, and the wind farm now opts to commence the CFD for payments) has not been issued? I never made any such claim – it is your invention entirely. Hornsea 2 and Moray East were fully commissioned over a year ago and have no plans to issue Start Date notices. Hornsea 2 and Moray East are subject to the windfall profits tax that applies to any average revenue excess above £75/MWh per taxable period for wind farms who have not commenced their CFDs, with ROC and REGO income being tax exempt.
Wind farms start selling on the market as soon as they have a grid connection and one or more connected turbines that can operate. However, the CFD cannot be commenced until the farm is fully commissioned, and CFD commencement requires them to issue a Start Date Notice, which is clearly an option under Vattenfall control – one they were not going to exercise, given the below cost CFD bid.
Really not sure why you invoke the LCCC statement about contract law. CFD terms have been changed by mutual agreement long after signing at Hinkley Point. Since the government are desperate for capacity and have a large element of sunk cost and do not want to upset the French, that was inevitable. It has set a precedent for renegotiation, and the government has opened the door to that with its consultation on non profit factor CFDs that are just an extra subsidy via the back door.
Moreover, all contracts have to be performed in line with the law as it applies from time to time. CFD contracts contain extensive provisions for compensation in the event that a change in law dents project economics.
“ have also explained that the penalty for withdrawing from the contract to build the wind farm is”
OK, now the smoke is clearing. Vattenfall has signed the contract, and there are penalties for withdrawing. You think Vattenfall could scoff at them, but they say, as quoted by the BBC:
“Market conditions had deteriorated since it signed a contract to fix the price of electricity it sells for 15 years, the company said.“
Since Vattenfall isn’t going to go ahead with the contract to build and it will be subject to early termination there are no payment obligations that survive termination (read the terms, as I have done). There are already over a dozen CFDs that have undergone early termination because the projects (mainly “Advanced Conversion Technologies”, CHP and solar) were not financeable. The write-off relates to costs already incurred and contracted for where termination payments may be due, and consequential losses.
Market conditions have indeed changed: forward electricity prices are much lower than a year ago when the market was its peak. Healthy forward prices would have allowed the project to be financed and PPAs secured to keep the banks happy. I note that Vattenfall built the Hollandse Kust Zuid windfarm without subsidy according to them. It is backed by PPAs with BASF and Air Liquide among others. Vattenfall are no strangers to the idea of relying on market sales and were clearly willing to play the game of bidding low on the CFD to secure the business. Plus of course Vattenfall face costs that have escalated 40%.
I can find no statement from the company to the effect that it had fixed the price of electricity it sells for 15 years. That statement appears to be invented by the BBC. CFD prices are not fixed anyway – something the BBC always likes to “forget” – they are index linked.
“That statement appears to be invented by the BBC”
I’m sure they rang them up and asked hem.
The CfD determines the distribution of funds from electricity generated. They can choose, as they have, not to generate any.
I’m sure the BBC simply downloaded the transcript of the presentation and the quarterly report, and decided how they would like to frame it. They only rang their mates at ECIU for quotes that align with the “BBC view” that could be inserted in such a way as to appear to come from the company – it apparently fooled you. They appear not to have been represented in the Q&A session at all.
Vattenfall are choosing not to fulfil the contract to build the wind farm. The penalty if the government enforce it is not being able to bid in the next round, which will delay the rollout of wind, and will be no problem for them while the government keeps its head in the sand attitude to the real costs of offshore wind.
Nearly correct. Vattenfall did sign their CFDs. But the terms do not require them to commit to providing electricity at the indexed quoted strike price until the issue a Start Notice, which they cannot do until the relevant phase has been fully commissioned, and which they are not compelled to do even once commissioning has taken place. Thus they retain the option to sell at market prices.
Because already Hornsea 2 and Moray East have gone down the route of producing without issuing their Start Date Notice, the government decided that under AR5 CFDs would be commenced once commissioning had taken place, and that the evaluation of that would not be in the hands of the wind farm, but of advice hired by the LCCC. They aimed to make the CFD compulsory, which is why they probably have no bids at all on offshore wind – especially as they are including much harsher terms on curtailment and negative prices as well, which would leave AR5 wind farms as first in line to curtail without compensation. The process is being dragged out to the longest possible extent as the government haven;t a clue what to do, and hope that delaying the announcement will somehow help: meanwhile they are cobbling additional subsidy mechanisms together.
Of course they should really be completely reevaluating energy policy in the light of the outdated and radically wrong view of the costs of wind.
Vattenfall really are thick as bricks. Britain already generates a huge amount of renewable energy, and all Vattenfall had to do was to use that to power their project instead of the other expensive stuff. You would think that a renewables company would have thought of that. Maybe someone else can take over and get it right. Renewable energy prices are now the lowest in Australia https://www.energy.gov.au/news-media/news/renewables-confirmed-cheapest-source-electricity, and it must surely be the same in Britain.
Vattenfall generate power using equipment they buy from others. Neither party has the option of powering with just renewable. All electricity on the grid is the same.
No , power coming into the grid is NOT the same..
You are manifestly WRONG.
Some is stable, reliable and dispatchable and allows the grid to operate consistently.
Other electricity supplies are unstable, unreliable and non-dispatchable and are a massive disruption to the grid
There is a world of difference
No-one has the option of powering just with “renewables”
It is not feasible, ever.
Your links says this: “‘This important report underlines the need for Australia and the world to invest heavily in renewable energy sources to put downward pressure on power prices.’ Invest heavily? I can guarantee that the price comparison did not include back up nor subsidy costs for renewables. Nor has he considered that the cost to replace the current level of renewables penetration will be many factors of the LOW minimum production, and that the added grid costs will be 7-14 times current investment.
Soros, Blackrock etc can invest all they want into wind, but DO NOT ask for us (Aust taxpayer) to give them subsidies or special treatment, pay for transmission lines to hook to the grid etc etc…
If they can delivery electricity WHEN NEEDED there should be no problems.
If they promise electricity, say day ahead, and don’t deliver, they should face fines equal to the electricity not delivered.
Gosh. With such complex and punishing regulations in place I have to wonder how anybody ever managed to build a reliable thermal plant.
Oh, wait..
“Costs have gone up, but so have electricity prices since they took on the CfD”
Oh, that makes us all feel much better.
But it isn’t true, at least for businesses. The CFDs were awarded in July 2022, and contracts signed in the weeks immediately following. That would have been right around when prices spiked to their peak. Prices since then have fallen substantially, and since they have yet to commence construction, the period of high price of electricity would have no impact on their costs.
Harris Kupperman noted over a year ago that the types of oceanic vessels needed for offshore wind construction are highly constrained – the skyrocketing costs of offshore wind surprise only the gullible.
Yep. Wind Europe recently noted in a press release that offshore foundation manufacturers and installation vessels are fully booked for several years
Press release 14th June 23 ‘NZIA:act now or Europe’s wind turbines will be made in China’
https:windeurope.org/newsroom/
https://windeurope.org/newsroom
The terms of AR4 CFDs allow the company to ignore the CFD and take market prices instead, in just the same way as Hornsea 2 and Moray East are already doing from AR3. So the Vattenfall decision reflects that they do not anticipate being profitable at market prices as supported by green taxes, and they are waiting to see what the government are prepared to do to rig the market further or offer by way of other back door subsidies.
The AR5 auction round currently in progress requires companies to take up the CFD once the wind farm is fully operational, a trigger point that can be decided by the Low Carbon Contracts Company based on metered outputs. The maximum permitted bid for offshore wind under AR5 is currently worth £58.85/MWh, and reports suggest there have been no bids at all. There is no option to build on a market price basis as the only way to secure a seabed lease is with a CFD.
“The terms of AR4 CFDs allow the company to ignore the CFD”
Yes. But once they have signed up, they are bound for 15 years, for better or worse.
No Nick.. they just ignored what they had signed, to scam the end-users.
No, they are not. I have read the terms and conditions in full (all 500+ pages). I suggest you do before commenting further.
Could you expand on that? Do you say that they are free to sell Boreas electricity on the wholesale market (and keep the money)?
Yes. Subject to taxes, including the windfall tax.
“just the same way as Hornsea 2 and Moray East are already doing from AR3″
Those projects were actually AR2. I don’t see how that helps on what is possible under AR4.
Because the terms are the same so far as those provisions are concerned.
Why don’t you read the terms Nick?
And, of course, the ultimate cost of all such ill-considered, optimistically-proposed, inadequately-reviewed, dismissive-of-warnings, poorly-managed, virtue-signaling, “green energy” fiascos is borne by non-involved tax payers.
Without subsidies, weather dependent renewable generation cannot produce sufficient energy over their lifetime to pay for their initial cost of installation. The fuel may be free but they’re FAR from free energy … Or even cost effective energy.
The limits of wind power are at last being recognised. Here in the UK the Saudi Arabia of wind remember, our present Tory PM is being pressed by his own MPs to abandon Net Zero, because it is unaffordable.
The Opposition deputy leader has also chipped in yesterday stating. ‘People can not afford the ultra low energy zone costs’ (ULEZ), The destruction of free movement being forced into place by councils across the country but primarily on London is being resisted.
Meanwhile the wind energy contribution to grid energy supply is again pathetic. With little more than 1.5GWs yesterday and a whole 2.5 GWs today. The ratio of installed energy to output is getting worse. There’s 28 GW installed capacity in the UK….apparently!.
Yesterday the extension lead plugged into continental Europe outperformed all of our windfarm capacity.
Maybe we should just stick with that net zero extension lead and stop messing with offshore wind?
Yes, there are real signs of strain in the UK political scene. It seems to be dawning on Labour just what a disaster they could get stuck with being responsible for. Whoever is in power when the result of these policies comes home to roost will be out of power for a generation. Regardless of who started it, which is all the UK political parties.
Its the one in power at the time of the crash that will be held responsible.
The problem with the extension lead is that it goes both ways – sooner or later they’ll want some back and we’d better be making a surplus at that point.
The real problem is that with Europe adopting the same policy folly we will end up with days ehere everyone wants to export and no-one wants to import on the one hand (indeed, we have already seen solar surpluses creating those conditions, with the UK paying up to £550/MWh to Dutch solar farms to curtail), while at other times the shortage of dispatchable capacity across the continent will mean there is simply no power available to import.
Demand peak for 7/21 was ~27.6GW https://www.energydashboard.co.uk/live. So to make UK’s grid sourced totally from renewable it would take (27.6/2.5= 11.04) times current investment to RIGHT size renewables. Or maybe (27.6/1.5 = 18.4) Or maybe (27.6/-.05 = Div by Neg Number) BTW that negative number is the electricity needed to start a stopped windmill.
I dunno, but does that last calculation prove renewables, especially wind, are not EVER GOING to work?
So, wind has had the wind knocked out of it. As a sensible alternative
“”Judge rejects challenge to Surrey Hills oil and gas exploration plans””
https://www.theguardian.com/environment/2023/jul/20/judge-rejects-challenge-to-surrey-hills-oil-and-gas-exploration-plans
Wow a judge who isn’t bonkers
That’s funny. They’ve been telling us for years that the sun and wind are free.
Of course, that does use the Socialist definition of free: paid for with other peoples’ money.
Margaret Thatcher had something to say about that.
How odd that British politicians couldn’t remember Margaret Thatcher.
Perfect.
There are growing signs of unease about Net Zero in the UK political class.
In the Parliamentary by-election on Thursday last in Johnson’s old outer London seat of Ruislip, a revolt agaist the London Ultra Low Emission Zone, and its tax on driving, seems to have been a large factor in letting the Conservatives hold the seat. They campaigned on the issue.
Angela Rayner, Deputy Labour Party head, has publicly commented that ULEZ is unaffordable. Cabinet members have read the smoke coming from Ruislip and are arguing for a new look at the 2030 ICE ban, and the ban on gas boilers.
Starmer, Labour Party leader, has also publicly worried about ULEZ. There is widespread opposition to similar schemes in other cities.
We also have the latest bidding round on offshore wind, and the potential bidders are saying that the price is too low for them to make a return. The implication is that market prices are also too low, because CfD prices are an option not an obligation.
Something is moving in the undergrowth in the UK. It could be voters!
Starmer blurted out “I hate tree huggers”.
That was last week, who knows what he thinks this week. Not that there’s much evidence that he’s capable of thinking.
Khan seems to have lost any support from the PLP. The mayoral race might be interesting.
As an update, Starmer has scheduled meetings with Sadiq Khan after not winning the Uxbridge and South Ruislip seat because of Ulez. This mayoral race might be very interesting, where did I put the popcorn.
Next to the wind turbine, underneath the solar panel. 😊
My perception, Michel is, the voters can see the obvious drawbacks to ULEZ, and likewise, the media, have to report it. But when it comes to wind & solar, there are still too many people who don’t understand the issues, and accept the narrative propagated by the media.
This will make one group of people in Norfolk happy, they can stop protesting against the huge pylons that were going to be erected near their towns and villages to bring the electricity onshore.
There is another potentially bigger problem with all the wind generation. All three of the big manufacturers have been losing money – about $1B per company. Together with that the machines are breaking down, so they are hemorrhaging more money on warranties. Effectively, the units are too big for the technology and material properties.
So the prices of new plants will have to go up – 30-40% is most estimates. As most of the expenditure is front end, that means the income developers need to pay back investment (and the higher interest rates add to this) are becoming a lot higher than the market will bear. On spot price markets like UK, NZ or Australia, when they are generating, everyone is, so prices are low or even negative – they are also dispatched off as the grid can’t take their power without making it unstable. Prices skyrocket when no wind. They lose money generating at the dumping prices and retail companies can’t get reliable power at a fixed price.
That is why the developers want bigger subsidies.
That was one I worked out on here a little while ago:
Repayments to bank
Total costs over 15 years = £40Billion
To be funded by sales of 142MHh of electricity
Thus cheapest (into the wholesale market) price = £282 per MWh
That will double by time consumers see it plus (at present) a 5% ‘Value Added Tax’ (VAT in the UK = general sales tax elsewhere
If used to charge an EV it will be +20% VAT (as currently) for home chargers. Base price for EVs will double again for ‘Superchargers’ on forecourts, carparks, supermarkets etc plus at least 20% VAT
Thus, today, UK retail power consumers would pay 59.2 pence per kWh
EV drivers using ‘away from home’ superchargers will be paying 135 pence per kWh
Assuming inflation over that 15 years of 5%, that means prices double every 15 years so after that time the electricity from Boreas & Vanguard windfarms will be costing 118.5 pence per kWh retail
and 270 pence for EV superchargers = One £GBP per mile in UK conditions
(That much diesel presently gets me 25 miles in a 2Litre Euro6 diesel)
UK inflation is presently closer to 10% than 5%
The people who organised this, under the promises of cheap cheap cheap secure secure secure should be in jail for Fraud and Racketeering if not Treason (against the People of the UK)
And folks encouraging them for Collusion/Conspiracy to defraud
Yes… but if you have time, the complete way to do it is an NPV analysis to take account of the time value of money. You already have the data, so it would be worth putting it into that form. If you want a howto, Brealey and Myers is the best one. Just the first few chapters.
Luggie is still doing OK from offshore wind
The Treasury said it would halve the proportion of the estate’s profits paid to the royal household through the sovereign grant, which will fall from 25% in recent years to 12% from next year.
However, soaring future profits from leasing the seabed to offshore wind developers mean the actual payout to the monarch will remain flat at £86.3m in 2024/25 – the same as this year’s grant.
It actually increased slightly – the republicans in the MSM are saying Charlie’s being given a pay rise but conveniently forget that the late Queen arranged for an increase to cover extensive renovations to Buckingham Palace.
Wind power is really that cheap ..
You might want to re-check your maths and assumptions.
Our wind as I wrote has SURGED up to 14% of demand. Three times that is 42%. 58% still to find for Net Zero. I despair. Has the BBC asked Lord Deben for his solution?
This might help you –
https://cafehayek.com/2014/03/then-a-miracle-occurs.html
Tory peer John Selwyn Gummer’s (Lord Deben) private company has been paid more than £600,000 from ‘green’ businesses that stand to make millions from his advice to Ministers.
https://www.dailymail.co.uk/news/article-6661513/Climate-Change-chief-John-Gummer-faces-calls-quit-payments-green-businesses.html
Nothing like feathering your nest
I’m looking to see where he pops up now he has finally left the CCC. Mind you, who wants to employ an 85 year old nutter?
I read yesterday the ambition is to increase wind capacity by 230% by 2030.
Seven years to build over double what it has taken the UK over 20 years to build.
These people are insane…….
Ideologically blind – there’s a lot of it about at the moment: climate ‘scientists’ that try to find absolutely any explanation for greening other than CO2, for example!
And still too little by a factor of at least 5.
Especially as National Grid has already said it will take 10 to 15 years to connect the unreliable projects already in the pipeline to the Grid.
There is a dedicated new line they want to build called East Anglia Green which would link this project to Tilbury on the outskirts of London. It is running into a lot of local opposition.
It won’t help. Yes, they are insane, but even if they manage to put it in it will not help.
Right now 28GW installed wind often generates less than 1GW for hours at a time. Several times a year under 5GW for a week or more.
Say we get to an installed parc of 90GW. Then we will have demand still at 45GW peak. We will still be only generating under 15GW for some weeks of the year. And under 3GW for most of some days several times a year. Both happen when demand is highest and when there is no solar, because winter.
http://www.gridwatch.co.uk/wind
Its not going to work. The build out is indeed impossible, but even if it were somehow managed, it would not meet demand.
sigh
the eyes are failing
I got little numbers and basic maths right – it’s just the windfarm (Boreas & Vanguard combined) will produce 142 MILLION MWh in its lifetime – not ‘just’ the 142MWh I told you
Meantime, BBC goes completely Headless Chicken..
https://www.bbc.co.uk/news/science-environment-66229065
Temp at Newark presently(10:00BST) = 13.6C and raining (5mm so far today)
The BBC must be stopped!
No, it must be scrapped
No, just defund it – remove the TV Licence fee and make it into another commercial station. It might survive.
Stark raving tonto. Rowlatt and co are certifiable.
Excellent piece by Paul Homewood on this. Excellent, as usual. He gives the real effect of the CfD price stated in 2012 prices, and its quite impressive. Must read.
https://notalotofpeopleknowthat.wordpress.com/2023/07/22/vattenfall-pull-boreas-offshore-wind-farm-not-economically-viable/#more-65838
If these people had to sell revenue bonds to pay for their projects (with no government entity guaranteeing payment) they would learn quickly what the real cost is. It’s the “you can pay me later” taxpayer backstop which lets them get away with these turkeys.
Lessons learned ..
Whoops! A $2 Billion Blunder: Washington Public Power Supply System
Fallout from a record default spreads from Washington State to Wall Street
By 1982 the total projected price of the five plants had exploded from $4.1 billion to $23.8 billion.
https://content.time.com/time/subscriber/article/0,33009,955183,00.html
Better call in New Jersey to prop up the UK project with exported subsidies.
The more windfalls that are built, the more fossil fuels required to build them.
And to provide them operational support when the wind & Sun simply don’t turn up
And maintain them, replace blades, (which, despite claims to the contrary, can be required in as little as 5 years dependent on conditions on site) paint them, clean trillions of dead insects off the blades, and to power the generators used to melt the ice from the blades in winter and keep them rotating when there’s no wind to stop brinelling of the bearings..
But Nick says it is all free, I don’t get it.
Well, you could try paying for it 😊
Brinelling, now that’s a word I’ve not encountered before. Just looked it up, which now makes me wonder.
Where I live there is a farm about 3 miles away atop a moor. The existing turbines were replaced a few years ago by a more powerful set (2MW). Over that time period, I’ve noticed that two of them never turn, no matter what the wind conditions are. So I’m assuming there has been some significant mechanical failure, I wonder if brinelling has happened to them.
Yeah, I assumed it had to do with marine environment exposure, but no. Something else I’ve wondered about is the basic configuration of a turbine, which is a long shaft essentially supported on only one end and a large weight on the other end, the blades. As the bearings wear the shaft would have to become more and more canted away from horizontal, leading to more bearing wear.
One thought that came to my mind some time ago. Using your description of a long shaft etc. Would be wind forces, when they get too strong, and the blades are feathered, the nacelle would swing as if on a pendulum. I envisage then that undesired forces could be applied to the bearings, hastening their wear.
Not forgetting the oils based products they need, for lubrication, cooling, hydraulics, lubrication and grease etc.
“All this, while the cost efficiency and reliability of these grand projects remain questionable”.
Nothing questionable about it – there is no cost efficiency or reliability.
This exposes, yet again, the lie that wind power is cheaper than gas fired electricity
The renewables peddlers always omit vital costs when they signal the virtues of wind power because it’s the only way they can ‘sell’ them to gullible politicians, who then foist them on communities
King Charles makes a nice little £ multi million earner from the Crown Estate renting out the UKs seabeds to off shore wind farm developers, reported to be around £111Mn for 2022, from a total income to the treasury of £440Mn – lots of other individuals also make vast incomes on the back of peddling renewables and other net zero trinkets (battery cars, heat pumps etc)
As a qualified Electrical Engineer and HV PM in the power generation & distribution sector, with over 40 years experience in high value energy projects, I already know how engineeringly incompetent wind & solar power are, compared to fossil fuels & nuclear, for powering a nation
It seems as we near peak stupidity and the ever upward green levies & subsidies further cripple already impoverished cost of living consumers, that reality and mass push back have finally arrived
Push back has started but more, much more is needed.
It’s over 50 years since I studied electrical engineering. And ended up in computing. Even so, I reflected on things that I learned, and have come to the conclusions, that you’ve highlighted.
It’s reassuring to know, that I’ve been on the right track, from the deliberations of a qualified engineer.
It is completely obvious to any Engineer that the whole net zero plan was never analysed properly, the risks were never even thought about, the balance sheet was always highly negative, the benefit was miniscule on a world view, and subsidies were always going to be very high. The “renewables are cheaper” story was exactly that, and the possibility of making everything renewable electric is pure fantasy. Then offshore wind looks good if the huge costs and risks of any offshore project are ignored, A simple maintenance job could cost as much as a land based turbine, and anything major a fortune. But there is more wind and few planning complaints, so worth a punt? Clearly not, it is just too expensive to build and maintain, particularly as structures at sea have to withstand very severe conditions with continuous very corrosive salt spray.
Synopsis: UK Government: “We refused to listen to the anti-green people tell us it wouldn’t work and have exceedingly high costs, and it’s turning out exactly like they warned us!!!“
Time to strike, without getting cocky and saying “We told you so” – just get the effective ban on fracking lifted.
And therein the problem… The Left never admits they’re wrong, about anything. I think it goes against their belief they are perfect and therefore incapable of ever being wrong. Of course I could be wrong, all it would take is for someone to provide an example of the Left admitting they were wrong about something…
No you’re right – Starmer and Rayner are 2 cases in point; instead of admitting they are wrong, they say the opposite and this becomes the new normal. And no-one ever questions them about it, not seriously. So, when reality really bites to the bone, look for the left’s new normal that fracking is ‘clean and beneficial’.
“a 40% surge in project costs”
Just imagine what they’ll cost when they need replacement in a few decades.
Probably an unintended consequence of a thorny path to NetZero.
Why don’t we rename NetZero to simply Zero?
A thought had occurred to me about that.
Assuming they continue down the catastrophic road, it will obviously take decades to build the network of windfarms. At around 20 years, the first installations will reach their lifetime and need replacing. That will increase the demand for more resources (materials & labour).
And every year after that, will see another batch needing replacement. I envision a possible scenario, where the rate of old farms reaching their demise, will be faster than new ones can be built?
“a future that will never materialize as envisaged”
But it will materialize as WE envisage it. Then we can tell everyone else “we told you so”.
Why would you want to say that? Leave it to the idiot lefties to be complete prat’s – I’d rather just fix the problem and get on with things.
No doubt this will be viewed as the biggest misallocation of capital in the history of mankind
CfDs are like REGOs – absolute virtue signalling cons dressed up as great green saviours
https://www.energylivenews.com/2023/07/21/sse-reports-29-shortfall-in-renewable-output-due-to-weather/
oh dear, more renewables misery
It won’t be just them of course. The worry must be that we have had poor wind since 2021.
That’d be a right bummer, if climate change resulted in weaker wind patterns.
Question about Vattenfall. Does anyone know the answer, with a proper reliable source referenced?
When you bid for CfD in the UK, you put a bid in, win the auction, and then are approved to build.
And you are also approved, should you choose to do this, to separately enter a binding commitment to sell your power generated under the CfD regime. Some newer wind providers have, after bringing their installation on line, refrained from the second. So they sell at open market prices, which recently have been way higher than the CfD prices. If they had signed up to the CfD pricing plan, they would have had to pay back the income which comes from the difference between the CfD price and the price they sold at. Same thing works in reverse on the downside.
Obviously Vattenfall won the bid, so it got the right to build, and it started to build. Nick says it has also done the second, signed up to delivering at the CfD price. Unlike some of the others.
Does anyone have a reference showing that it has signed up to a CfD price contract? I cannot find one, but maybe someone here knows or can point to one.
https://group.vattenfall.com/siteassets/corporate/investors/credit_ratings/moodys/credit_opinion-vattenfall-ab-update-to-credit-06jul2023.pdf
Moody’s credit analysis report.
in 2022, it was awarded a 15-year Contract for Difference for Norfolk Boreas (1,800 MW), where onshore construction is set to begin in 2023.
But while the CfD was “awarded”, this report doesn’t assert that it was “executed”.
I guess only Vattenfall’s board / executives would know this.
The CFDs were signed, and are listed here:
https://www.lowcarboncontracts.uk/cfd-register/
Type Boreas in the search box and the project comes up divided into 3 phases. The key dates are set in relation to the Target Commissioning dates (each phase is different), setting various milestones.
To become bound by the CFD price, they have to issue a formal Start Date Notice which can only be done once the wind farm section is commissioned – but which does not ahve to be done at all for an AR4 wind farm.
There is a Long Stop Date after which there would be no option to issue a Start Date Notice. The option of shutting the wind farm down would of course be shooting yourself in the foot at that point.
Some reference numbers. A while ago I redid the blatantly false EIA LCOE for CCGT and on shore wind. Details in guest post True Cost of Wind over at Judith’s. Correctly calculated AND ignoring subsidies, CCGT LCOE about $58/MWh compared to on shore wind at $146/MWh. About 2.5x.
EIA says off shore wind is about 3x onshore. That is likely low, but means offshore wind is 7.5x CCGT. And UK has plenty of natural gas if they would only frack for it. Won’t end well.
Who will be responsible for decommissioning, waste, and recycling for wind and solar?
An educational and entertaining 30-minute Podcast Event by Armando Cavanha in Brazil with Ronald Stein
https://www.linkedin.com/events/7087184044043452416/comments/
Isn’t it obvious what happens next?
First they sold the project on the basis of lies and wishful thinking. Now they’re demanding more subsidies. Nut Zero can’t go forward without this sort of fiscal bloodletting, so of course your worthless politicians will cave.
Wind is the cheapest energy source donchaknow? And you’re getting more and more bird shredders. That’s why electricity prices are soaring, obviously.
Imagine being heir to the crown, and realizing that if the country is forced to switch to wind power, you will suddenly be the one collecting the profits for all the power!
But I am 100% certain nothing like that has a single thing to do with any of it.
I note that the Treasury decided to dock the amount handed over to the King for the Civil List because of his unexpected windfall profits from wind farms.
Does this project use the newer, poorly tested, extra large generators that are failing at a high rate in other projects? That would mean projected warranty payouts are likely to be much higher than originally anticipated.
I think there is a high possibility that Vattenfall are nervous about the likely performance of the Siemens-Gamesa turbines they had selected.
https://www.siemensgamesa.com/en-int/newsroom/2021/11/211108-siemens-gamesa-press-release-vattenfall-norfolk-offshore
Perhaps they are completely rethinking the design choice. Certainly the risk of high maintenance bills and accompanying downtime awaiting fair weather time on the maintenance cranes or for spare parts to be manufactured would give a big dent to the economics.
We get an update from Siemens Gamesa in early August when they announce their annual results, following their earlier admission of problems with some of their turbines leading to losses on maintenance contracts.
It’s easy to see a way out for governments: declare rebewables a public necessity like roads and sewer lines and ports. No cost-benefit justifications are needed for fundamentals (like the military, MI6, coast guard etc) that are presented as required for the country/civilization to be healthy or even exist.
You ever see a cost-benefit analysis of the tax departments?
It’s called financial nationalisation. Already applied in the UK to the railways (again!) and banks – the controversial Coutts/NatWest is still 40% state owned for instance.
The usual result is starvation of investment and decay of services, often coupled with strikes.
Having read a good sample of comments, and Nick’s dogged stance in the face of adversity.
I find the whole thing, CfD’s etc, totally confusing, and I’m glad that many of you are ‘switched on to the subject’, and understand what’s going on.
The one thing I have concluded from these posts and other articles I’ve read about the renewable industry in the US, the whole financial dealings within the industry are just one gigantic fiddle, designed to extract money from our pockets, to fill theirs.
Irrespective of the fiscal side of the double dealings, at a technological level, it is patently obvious, that ruinables are not economically viable.
In consideration, that wind, requires tens of thousands (if not hundreds) of turbines, the resource materials required to construct them, the technological issues to overcome, maintenance etc. etc.
It is obviously cheaper to base our supply on a (relative) handful of reliable power stations, easier to manage, less complex and so on.
Regardless, in spite of the obvious pitfalls, and ‘writing on the wall’, our stupid government, will plough on regardless, plunging us ever deeper into the mire.
As Prof Michael Kelly (Camb U, Electrical & Electronics Engineering) said in a podcast, ‘what happens if, after massive investment, years down the line, it is discovered that the entire project isn’t workable, what then?’