Thursday, 11 June 2015

How onshore wind is now quite cheap through the Renewables Obligation

Despite all the furore about alleged large subsidies being earned by onshore wind through the Renewables Obligation, the facts speak otherwise. We have heard how, under the new Electricity Market Reform 'contracts for differences',  onshore wind contracts were won in the February auction organised by the Government for a £80 per MWh for just a 15 year contract. Of course this is much less than Hinkley C is being offered for a 35 year contract.

What is less known is that even under the Renewables Obligation onshore wind is not being paid more than around that figure now (£80 per MWh). You can calculate this by inspecting the results of the auctions for renewable obligation certificates (ROCs). These come out at around £42 per MWh recently, and onshore wind receives 90 per cent of this figure, say £38 per MWh. Add to this the wholesale electricity price, which is currently running a around £42 per MWh. Add the two things together, and, bingo, you get £80 per MWh.

Compare this to the price being offered to Hinkley C, which in 2012 prices is £92.50 per MWh (for 35 years underwritten by a £10 billion loan) which in current prices is £94 per MWh.

Not much of a contest is there? - especially when you consider that Hinkley C is not actually being built for this price! (that's because its not being currently built until the French or UK Governments step up to promise to pay the inevitable cost overruns).

There is an odd debate going on in Scottish newspapers such as the 'Scotsman' which seems to ignore what should be an obvious fact that Scotland is connected to the British electricity system, so it is not relevant to argue as if it wasn't. There is much lamenting of closure or mothballing of fossil fuel power plant. The reason that power plant are ceasing operation is not because there is an electricity crisis, but a product of the opposite, ie that electricity demand in the UK has greatly fallen - so it is quite good that fossil production is being replaced by renewables. The National Grid are busy managing this system by contracting for as much reserve plant as is necessary, and not according to scare stories in the Scotsman. 

It should also be borne in mind that nuclear power plant make the task of integrating renewable energy a lot more, not less, difficult since nuclear power plant are given 'despatch priority' which means that wind power plant have to be turned off if there is too much electricity on the system. This leads leads to complaints that wind operators are being paid 'constraint payments' when in fact the fault that this is happening is because of the technical and economic shortcomings of nuclear plant (which are not going to be turned off), not the wind (or solar pv) plant.

For ROC prices see about £42 per MWh

For wholesale power prices see:
power exchange prices

solar pv deployment
about 6.5 GWe

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