Tuesday, 22 October 2013

Give community wind power the same EMR terms as Hinkley C!

EDF etc have been offered terms for constructing Hinkley C which are much superior to the terms being currently offered, under the terms of Electricity Market Reform (EMR), to community wind power schemes (and also, in crucial ways, all renewables).  Hinkley C is getting £92.5 per MWh for 35 years with 65 per cent of its capital costs 'underwritten' by loans which will be guaranteed by the Treasury. 

From 2018 onshore wind is being offered, under EMR, a 'headline' strike price of £95 per MWh, but only for 15 years and without any loan guarantees. Remember that independent generators will, in reality be paid a lot less than than £95 per MWh, perhaps little more than around £80 per MWh, since the contracts for differences (CfD) feed-in tariffs are available only to major electricity companies. The Big utilites (in effect the Big Six) will cream off this sort of difference between these two figures. So £92.5 per MWh over at least a 20 year contract with 65 per cent of their costs raised through Treasury guaranteed (and therefore low interest) loans would be a very good boost for community wind power schemes  - that is if such power purchase agreements (PPAs) were directly available to such schemes. 

The Government has talked about extending the size of the schemes which qualify under the small feed-in tariff from 5MW to 10 MW. However this makes little difference as the rates payable under the small feed-in tariff are very low for anything larger than a few hundred KW. A 2 MW project, for example, would receive less than £60 per MWh.

In addition to offering Hinkley C type terms to community wind schemes, other types of renewable energy schemes could do with having much longer power purchase agreements and access to Treasury loan guarantees. Indeed the length of the PPAs for renewables in general has been cut from 20 years under the Renewables Obligation to 15 years under EMR. Tidal and wave and offshore wind schemes would benefit greatly from having access to Treasury loan guarantees. Offshore wind schemes could benefit greatly from having 35 year contracts as much of their infrastructure would last for that long. Why not give all renewables PPAs of at least 20 years and give them access to at least £10 billion worth of Treasury-backed loan guarantees? Why not give struggling solar pv companies some Treasury backed loans?

If you factor in all of the issues discussed, then community wind is much cheaper than power from Hinkley C. If it had direct access to feed-in tariff contracts, a 20 year contract and 65 per cent loan guarantees then it could put on just as economically viable schemes for around £70 per MWh  - which is about a quarter cheaper than Hinkley C.

The Government say that they will not give 20 or 25 year contracts to wind because the contract lengths are being given out in 'proportion' to the life expectancy of the power plant. They say nuclear will last 60 years, and hence will get a contract to last 35 years. In which case, then, what is all this nonsense about having to replace nuclear power stations that are about to retire? If they last 60 years, then the first of the major existing nuclear power stations (AGRs) will not retire until 2036. So why do we need a programme to replace them at all?

To recap how you can work out what community wind loses from the 'headline' wind strike price of £95 per MWh set for 2018 com pared to the terms offered to Hinkley C:

around £15 per MWh lost to major electricity companies in 'top sliced' contracts

Around £7 per MWh lost is having a 15 rather than a 20 year contract

Another £3-5 per MWh lost through having to pay higher interest rates.

Of course offshore wind schemes, which are seen as being a bit more riskier than onshore schemes would benefit much more greatly from having Treasury loan guarantees - their cost could be reduced by £10 per MWh, in addition to having costs reduced by access to 35 year contracts. Tidal and wave projects need Treasury backed loans as a virtual necessity because the technologies are still seen to be too innovative to receive conventional bank loans.

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