Wind farms to pay back £660 million, as levies lead to lower costs

Britain’s investment in renewables, supported by ‘green levies’ on energy bills, is lowering electricity costs, with some of Britain’s oldest, more expensive wind projects now delivering power more cheaply than gas generators, according to new analysis from the Energy and Climate Intelligence Unit.

Academics at the ECIU calculate in its latest report that, over the 18 months to April 2023, wind farms are expected to pay back at least £660million into energy markets. This is because their contracted prices are much lower than the current wholesale cost of electricity which has been driven up by the gas crisis, says the ECIU.

The real saving is likely to be still higher if, as expected, Russia’s violation of Ukraine prolongs the gas crisis into late 2022, the body predicts.

The ECIU’s modelling rebuts sustained attacks from right-wing Conservatives and media commentators such as Andrew Neil in the Daily Mail, that their hated ‘green levies’ add to poor homes’ short-term bills.

Traders are predicting gas prices will remain at unprecedent highs for months at least. If a gas crisis were to re-occur between now and 2027, the think-tank calculates, even cheaper wind farms coming online in the UK over that period could be paying back £6.7billion in a year, equivalent to £85 per home.

In the unlikely event of wholesale gas prices dropping back to £50 per MWh in 2021 prices, several of the new wind projects under construction would still be paying back, says the ECIU in a new report.

Once the UK reaches its target of 40GW of offshore wind by 2030, alongside further onshore wind development, if the gas crisis was to be repeated, this figure could jump to £26billion, equivalent to £330 a home.

These paybacks result from Contracts for Difference, the mechanism which provides a fixed ‘strike price’ to renewables operating since 2017.  So successful have the CFDs been in speeding renewables deployment at lower output costs, that energy secretary Kwasi Kwarteng is doubling the frequency of CfD auctions.

New onshore wind farms in England and Wales ceased in 2015, after David Cameron excluded them from CfD eligibility.  Johnson’s Conservatives are reportedly contemplating using ‘national security’, not climate science or economics, as their heavily trailed justification for lifting their own seven year ban.

Green levy on wind generation now ‘effectively zero’

With wind generators set to continue making payments into early 2023, the CfD ‘green levy’ on bills has been set to effectively zero, the ECIU argues, so that customers will not be paying for CfD wind farm contracts under the next price control.

Currently, the CfD levy cannot be set to be negative – but once through this immediate crisis, the think tank suggest ministers could consider changing the legislation so that households can essentially receive payments from cheap wind farms.

Dr Simon Cran-McGreehin, Head of Analysis at the Energy and Climate Intelligence Unit (ECIU) commented:

“Even though ‘green levies’ are falling and are dwarfed by the cost of gas on bills, there is valid debate as to whether these costs should be transferred to general taxation.

“It’s worth considering though this would mean any wind paybacks in future go to the Treasury and not potentially into people’s pockets.

“Scroll forwards to more, even cheaper wind farms being built under the net zero target and there is a potential wind windfall of £26billion in a future gas crisis, equivalent to shaving £330 off each home’s bills.”

Bim Afolami MP, Conservative chair of the all-party Parliamentary group on renewables, commented: “Wind energy is cost effective, clean and is providing an economic shot in the arm for everyone supplied with renewable energy to power their homes and businesses. We need to usher in more wind power capacity to keep prices low, and protect ourselves from volatile global gas prices and Russian gameplaying with our energy security.

“Through competitive auctions, the fixed price for electricity is locked in and the CfD scheme will enable investment to finance wind projects and all under our mission to decarbonise our energy supply to net zero.”

The ECIU’s paper cites six major offshore farms contracted to come online over the next few years and providing further paybacks via CfDs.  Generating first in one or thirteen months respectively, the first two will be:

• Moray East wind farm off north-east Scotland could pay back the equivalent of £6.50 per home per year during a gas crisis.
• RWE’s Triton Knoll wind farm off Lincolnshire could pay back the equivalent of £5 per home per year during a gas crisis.