Saturday, 25 May 2013

Government set to please UKIP by cutting wind support

Onshore wind support is set to be cut back in what will be seen as part of an attempt to mollify the resurgent hard right forces of UKIP and right wing Tory backbenchers who oppose wind power. The Government is about to publish a review of support for onshore wind through the Renewables Obligation. They are expected to announce a further cut on the amount of Renewables Obligation Certificates (ROCs) available for onshore wind. Last year the Government cut support from 1 ROC to 0.9 of a ROC for new onshore windfarms, this having taken effect in April. Now the Government are about to announce a review which may cut support by a further 0.1 ROC (or more) to take effect in April 2014.

The last review was coloured by a battle between the Treasury and DECC over the level of support, with the battle being pictured in the media as a battle between the Liberal Democrats and the Conservatives over how much support should be given to onshore wind. But there is no doubt that further cuts in support for onshore wind will go a little way to pleasing the 101 Tory MPs who wrote in opposition to onshore wind power in February 2012. Now that UKIP is putting opposition to windfarms alongside gay marriage as its second tier of political dislikes (just behind the EU and immigration) and that many Tory MPs feel increasingly beholden to echoing a UKIP position, we can expect a further set piece political wrangle over onshore wind subsidies. The main loser in this will be the renewable energy targets and the prospects for clean energy in general. Inevitably we will be swapping wind power for either more gas burning or more imported biomass burned in Drax B (otherwise) coal fired power station.......or nuclear power later down the line if the Government were to give it good enough terms.

 But the government is heading for a big cumuppance in its efforts to cut wind power support as it will face outrage from clean energy supporters when it becomes clear later in the year that it is giving better terms to nuclear power to onshore and even offshore wind power. The Government is set to announce the 'strike prices' for different low carbon fuels which will indicate the amount of subsidies that each will receive in July. These are the prices for the 'contracts for difference' (CfDs). The Government will hope that little attention will be given to the length of time these subsidies will be available to generators, since nuclear power will be given them for far longer than renewable energy generators.
Currently new (post April 2013) wind power projects effectively receive around £90 a MWh for a mixture of the wholesale power price and the value of the 0.9 ROC. This is made up of wholesale electricity prices of about £50 per MWh and the value of the ROCs for onshore wind at about £40 per MWh. This (£90 per MWh) figure, however, cannot easily be compared to the price given under the 'contracts for difference' (CfDs) that will be issued by the Government following the adoption of the Electricity Market (EMR) reform package later this year. That is because the CfDs promise to give more reliability about future values of subsidies and will therefore give a lower level of support compared to what is available under the RO. Hence, when the Government announces its strike prices in July of this year onshore wind will not receive more than around £80 per MWh.

But that is not the end of the story. A key issue are the lengths of the contracts (for ‘low carbon’ fuels) for which the premium prices will be paid. Onshore wind and offshore wind will, I am told, be paid them for no more than 15 years. Yet nuclear power schemes will be offered them for at least 25 years (EDF demands 40 year contracts).

The Government has already prepared the way for this difference by talking about a need for a distinction between 'baseload' and 'intermittent' plant, implying that nuclear baseload is somehow more valuable. Of it is not since it cannot be increased to account for fluctuations in electricity demand or supply, and as has been revealed, a considerable proportion of its capacity has to be 'backed up' by gas turbines to protect the grid from the impacts of failure of a large nuclear power station. Meanwhile wind power plant already have the cost of balancing their variable output discounted through the traded wholesale prices of their electricity production. They already effectively pay for their ‘intermittency’ (variability).

Therefore, nuclear power is going to be receiving its subsidies for at least 25 years as opposed to wind power which will receive them for only 15 years. Nuclear supporters say that wind turbines only last 15 years - yet in fact the developers (especially offshore wind developers) would benefit greatly from longer contracts. In the case of offshore wind you could give a relatively high premium price for the first 15 years and then a much lower one for another 10-15 years to enable the existing foundations, tower and electrical connections to be retained and the wind turbines to be cheaply refurbished. Yet nuclear power will receive a high premium price for at least 25 years, maybe even 35-40 years if EDF gets its way.

Even that is before the 'underwriting' of construction costs demanded by EDF, which is likely to amount to a blank cheque.

It is difficult to see how the Government can seriously maintain that giving a much longer contract to nuclear power as opposed to renewables does not give nuclear a competitive advantage – the Treasury designed  'levy control framework' involving caps on spending on low carbon energy sources will ensure that more support for nuclear will mean less support for renewables.
When you start to think about how the subsidy level given to onshore wind will be cut back to around £80 per MWh compared to a much higher price for nuclear power for a much longer contract, the sheer pro-nuclear imbalance of the Government's policy becomes glaringly clear. Offshore wind is set to receive around £100 per MWh from 2020, with nuclear power to be given slightly less to give a facade of equality between the fuels. But how can the Government claim that the subsidies are being made equally available to all generators when so much better terms, including length of contract, will be given to nuclear power rather than renewables? I am sure that the European Commission will also be quizzical when they come to see the Government's application for permission for EMR under the EU state-aid rules.

But the bias in support of nuclear and against renewables will give some balm to the political right. The problem for Ed Davey is how he squares this concession to the anti-wind power pro-nuclear political right with his claims that the Liberal Democrats are defending green energy. What sort of green energy is this? Green radioactive waste perhaps?

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