UK eyes up cap on renewable electricity revenues after EU to raise £123bn in windfall tax.

[idpickering]

The invasion of Ukraine altered the wholesale energy price market, with worries for consumers increasing as winter approaches.

Liz Truss’s Government is forging ahead with plans to cap the profits of renewable electricity generators, according to new reports, as soaring energy prices continue to feature high on the political agenda. This comes as the Government looks to limit the maximum price of electricity from some renewable facilities and nuclear generators as early as within the next few days, the BBC reported on Saturday.

https://www.express.co.uk/news/uk/16801 ... uss-latest

Ian.

[BullDog]

That's (not) going to be wonderful for accelerating new renewable energy projects and have the UK get back to energy independence. Our island is so rich in conventional and renewable resources. One might be forgiven for wondering how we managed to get in a mess where planned three hour electricity outages are likely this winter if it's a cold one with little wind.

[gryffron]

Good.

The current system of electric pricing is pretty stupid. Everyone gets the highest price bid. It really is a windfall for renewables just as much as the oil/gas companies are receiving.

Given that many renewable suppliers were given contracts based on a guaranteed minimum price (which the oil/gas companies never had). It's a bit rich for them now to be coining in more than that. In many cases MUCH more.

The typical bid price (guaranteed minimum) for new-build renewables this year is now WAY lower than the current market price of electricity. £45/MWh for offshore wind vs a wholesale price currently averaging c£260.

The idea of a guaranteed minimum + cap still gives a solid return with plenty of room for profits. No reason it should slow the rollout of new renewables.

Gryff

[BullDog]

Not necessarily true. Many generators supply under a contract for difference. The price they get is exactly the same no matter what the market price is. Presently, those CFD suppliers are paying the extra profit back to the government already. There is no windfall to tax. But let's not let facts get in the way of a good story?

[daveh]

Good.

The current system of electric pricing is pretty stupid. Everyone gets the highest price bid. It really is a windfall for renewables just as much as the oil/gas companies are receiving.

Given that many renewable suppliers were given contracts based on a guaranteed minimum price (which the oil/gas companies never had). It's a bit rich for them now to be coining in more than that. In many cases MUCH more.

The typical bid price (guaranteed minimum) for new-build renewables this year is now WAY lower than the current market price of electricity. £45/MWh for offshore wind vs a wholesale price currently averaging c£260.

The idea of a guaranteed minimum + cap still gives a solid return with plenty of room for profits. No reason it should slow the rollout of new renewables.

Gryff

Except it's not a guaranteed minimum with CFD the generator gets the contracted price, if the wholesale price is more than the CFD price the extra goes to the government not the generator.

[gryffron]

So the govt has been trousering the profits of our massive electricity bills. Surely this substantially offsets the cost (to govt) of subsidising the market. It should be subsidising the energy price cap itself? Why has this superprofit never been mentioned by all the news reports. I suppose they're too eager to criticize the "greedy" oilcos.

And what's the point of the Express story? Are they saying there are SOME energy firms to which this does not apply?

Gryff

[Itsallaguess]

And what's the point of the Express story?

Are they saying there are SOME energy firms to which this does not apply?

Not all current contracts are on 'contract for difference' terms.

Some of the earlier contracts are the ones which are still pegged to the marginal cost of gas which has risen substantially in recent months, and it's those that the Government are looking to change because they're currently enabling 'windfall' revenue to be made by some renewable energy companies.

Some further details were covered by a couple of articles on the thread below -

https://www.lemonfool.co.uk/viewtopic.php?f=8&t=17343&p=536259#p536245

Cheers,

Itsallaguess

[gryffron]

Thanks. Seems a bit harsh to hammer only the greenies and not the oilies. When they are enjoying the same boost. But I guess the greenies don't contribute enough to Tory funds.

Guess the govt aren't getting much of a profit given the price of offshore wind was much higher just a few years ago. But they must still be saving a lot of money vs earlier subsidies to the industry.
https://www.carbonbrief.org/analysis-re ... s-by-2023/
Offshore wind price has dropped from £164/MWh to £45 in just 6 years
(edit): Correction 5 years. That graph is a prediction from 2019. The actual cost is £45 THIS year 2022.

Gryff

[Dod101]

Thanks. Seems a bit harsh to hammer only the greenies and not the oilies. When they are enjoying the same boost. But I guess the greenies don't contribute enough to Tory funds.

Guess the govt aren't getting much of a profit given the price of offshore wind was much higher just a few years ago. But they must still be saving a lot of money vs earlier subsidies to the industry.
https://www.carbonbrief.org/analysis-re ... s-by-2023/
Offshore wind price has dropped from £164/MWh to £45 in just 6 years
(edit): Correction 5 years. That graph is a prediction from 2019. The actual cost is £45 THIS year 2022.

Gryff

Do you not remember that Sunak introduced a 25% windfall tax on oil (and I think gas) producers from North Sea profits? I think they are just trying to lever things up a bit by trying to do something similar with the renewables sector. I think your cynicism is a little misplaced.

Dod

[daveh]

Thanks. Seems a bit harsh to hammer only the greenies and not the oilies. When they are enjoying the same boost. But I guess the greenies don't contribute enough to Tory funds.

Guess the govt aren't getting much of a profit given the price of offshore wind was much higher just a few years ago. But they must still be saving a lot of money vs earlier subsidies to the industry.
https://www.carbonbrief.org/analysis-re ... s-by-2023/
Offshore wind price has dropped from £164/MWh to £45 in just 6 years
(edit): Correction 5 years. That graph is a prediction from 2019. The actual cost is £45 THIS year 2022.

Gryff

Do you not remember that Sunak introduced a 25% windfall tax on oil (and I think gas) producers from North Sea profits? I think they are just trying to lever things up a bit by trying to do something similar with the renewables sector. I think your cynicism is a little misplaced.

Dod

Except the oil companies can offset up to 91% of that tax against investment expenditure so not have to pay it. There was an FT article I saw saying that the green energy companies would prefer a windfall tax like the oil companies if they could set investment expenditure against it like oil companies.
There was also this BBC article:
https://www.bbc.co.uk/news/uk-63183946
and the following FT articles
https://www.ft.com/content/5187f160-eec ... f973bc68a7
https://www.ft.com/content/ffb515dc-ac3 ... 4a6dcdeeca
https://www.ft.com/content/89fd7fa9-ac2 ... b6237bb4b6

[Hallucigenia]

Thanks. Seems a bit harsh to hammer only the greenies and not the oilies. When they are enjoying the same boost. But I guess the greenies don't contribute enough to Tory funds....(edit): Correction 5 years. That graph is a prediction from 2019. The actual cost is £45 THIS year 2022.

Gryff

It's £45 for contracts signed this year, but there won't be turbines spinning on those contracts for another 2-3 years.

There is a problem with the early renewables, who are making out like bandits under the ROC system which is effectively a straight subsidy in addition to wholesale prices. As an aside, that's why Brussels had a problem with it, they forced us to switch to the CfD model so that there was a chance of the government getting money back rather than it just being a one-way subsidy.

Some kind of windfall tax on ROCs has been an obvious win that they could have done 6 months ago, but instead there's just been the usual incompetent dithering.

[richfool]

"Renewable energy investment company managers comment on energy price cap
Energy price cap “represents more of an anaesthetic than a solution”.
11 October 2022
https://www.theaic.co.uk/aic/news/press ... -price-cap

[Mike4]

That's (not) going to be wonderful for accelerating new renewable energy projects and have the UK get back to energy independence. Our island is so rich in conventional and renewable resources. One might be forgiven for wondering how we managed to get in a mess where planned three hour electricity outages are likely this winter if it's a cold one with little wind.

Tidal power unlike wind, never stops. I'm unclear why we have not gone hell-for-leather for tidal from the get-go. High and low tides even happen at different times around the coastline!

[BullDog]

That's (not) going to be wonderful for accelerating new renewable energy projects and have the UK get back to energy independence. Our island is so rich in conventional and renewable resources. One might be forgiven for wondering how we managed to get in a mess where planned three hour electricity outages are likely this winter if it's a cold one with little wind.

Tidal power unlike wind, never stops. I'm unclear why we have not gone hell-for-leather for tidal from the get-go. High and low tides even happen at different times around the coastline!

Absolutely. Just one aspect of why the UK is incredibly energy rich.

[Mike4]

That's (not) going to be wonderful for accelerating new renewable energy projects and have the UK get back to energy independence. Our island is so rich in conventional and renewable resources. One might be forgiven for wondering how we managed to get in a mess where planned three hour electricity outages are likely this winter if it's a cold one with little wind.

Tidal power unlike wind, never stops. I'm unclear why we have not gone hell-for-leather for tidal from the get-go. High and low tides even happen at different times around the coastline!

Absolutely. Just one aspect of why the UK is incredibly energy rich.

I suppose one drawback of milking tidal for all we can, would be the moon would slow down and eventually crash into the Earth...

But I suspect Putin will get turfed out of Ukraine before that happens.

[Hallucigenia]

Tidal power unlike wind, never stops. I'm unclear why we have not gone hell-for-leather for tidal from the get-go. High and low tides even happen at different times around the coastline!

Well most forms of tidal energy do come to a complete stop, every 6 hours - and although distributing it around the coastline helps, the good spots are not evenly distributed. I see a lot of demand for seabed 3-hours-tide away from the huge resource in the Pentland Firth though.

The short answer is that tidal is just A Lot More Difficult than wind, and so it's a lot more expensive. The wind guys could work out the kinks on dry land, with easy, 24/7 access by LandRover and no need to marinise the kit. Then moving offshore, although they needed foundations in the sea, all the delicate bits were at least out of the water (most of the time). Whereas tidal power has to be actually in the sea, which has implications for everything from maintenance (you can only access it for 40-60 minutes of slack water as the tide turns) to how robust even the "delicate bits" have to be - the higher density of water makes it a lot more destructive than air.

So it's expensive, and there's not been much experience elsewhere in the world that we could lean on here, whereas our offshore wind has benefited from technology proven in Denmark etc. And so when tidal came to compete with offshore wind for subsidy, it just couldn't really. But now that wind has gone through the subsidy system and no longer needs them, tidal has a better chance of attracting subsidies. Specifically, industry was told that there would be subsidy for 100MW of tidal guaranteed in the bidding rounds between 2015-20, with an initial price set at £305/MWh although nobody was ready then, but the success of offshore wind meant that the budget was overspent and so Greg Clark pulled the tidal guarantee. But to give you an idea, Atlantis (SAE.L) are probably the furthest along and they have just won rights to 28MW of tidal at £178.54/MWh (which won't go live until 2027), with 3 other projects accounting for 12.82MW. Current target is 1 GW tidal deployed by 2035.

[Itsallaguess]

Price-cap legislation to be introduced to the House of Commons later today -

Renewable energy generators and nuclear power plants could have their revenues capped under a new government plan.

The move could hit the profits energy companies, like SSE and Scottish Power, generate from record-high wholesale power prices.

Ministers say the proposal would ensure consumers and businesses pay a fair price for energy. But energy bosses say the plan - for which there are few details - could put off investors.

Currently in the UK, wholesale electricity prices are set by gas-fired generation. With the price of gas rocketing in recent months, some nuclear power plants and solar and wind farms have made big profits.

This is different at newer facilities, which produce power at an agreed price.

The temporary cap, which will limit the amount generators can make, is set to be introduced in the House of Commons on Wednesday as part of the Energy Prices Bill.

https://www.bbc.co.uk/news/uk-63224014

Cheers,

Itsallaguess

[Dod101]

Tidal power unlike wind, never stops. I'm unclear why we have not gone hell-for-leather for tidal from the get-go. High and low tides even happen at different times around the coastline!

Well most forms of tidal energy do come to a complete stop, every 6 hours - and although distributing it around the coastline helps, the good spots are not evenly distributed. I see a lot of demand for seabed 3-hours-tide away from the huge resource in the Pentland Firth though.

The short answer is that tidal is just A Lot More Difficult than wind, and so it's a lot more expensive. The wind guys could work out the kinks on dry land, with easy, 24/7 access by LandRover and no need to marinise the kit. Then moving offshore, although they needed foundations in the sea, all the delicate bits were at least out of the water (most of the time). Whereas tidal power has to be actually in the sea, which has implications for everything from maintenance (you can only access it for 40-60 minutes of slack water as the tide turns) to how robust even the "delicate bits" have to be - the higher density of water makes it a lot more destructive than air.

So it's expensive, and there's not been much experience elsewhere in the world that we could lean on here, whereas our offshore wind has benefited from technology proven in Denmark etc. And so when tidal came to compete with offshore wind for subsidy, it just couldn't really. But now that wind has gone through the subsidy system and no longer needs them, tidal has a better chance of attracting subsidies. Specifically, industry was told that there would be subsidy for 100MW of tidal guaranteed in the bidding rounds between 2015-20, with an initial price set at £305/MWh although nobody was ready then, but the success of offshore wind meant that the budget was overspent and so Greg Clark pulled the tidal guarantee. But to give you an idea, Atlantis (SAE.L) are probably the furthest along and they have just won rights to 28MW of tidal at £178.54/MWh (which won't go live until 2027), with 3 other projects accounting for 12.82MW. Current target is 1 GW tidal deployed by 2035.

And we already have problems getting power to where it is needed most (the south of England). The Pentland Firth is a long way from there.

Dod

[idpickering]

More to this was mentioned on Bloomberg this morning, but I found this on the topic;

GOVERNMENT PLANS CAP ON REVENUES OF RENEWABLE ENERGY FIRMS.

Renewable energy generators and nuclear power plants face having their revenues capped as part of new government legislation.

The Energy Prices Bill will be introduced in the Commons on Wednesday to bring into law its plan to help households and businesses with soaring energy costs over the winter and beyond.

But late on Tuesday, the government revealed the bill would also seek to "sever the link between high global gas prices and the cost of low-carbon electricity" through a new temporary "cost-plus revenue limit" in England and Wales.

The government said the price of gas decides the price of electricity, so as gas prices soared over the last year, many of Britain's wind farms and solar farms were paid a lot more than normal for their products, even though their costs had not increased very much.

Renewable firms were "benefiting from abnormally high prices, while consumers are having to pay significantly more for energy generated from renewables and nuclear, even though they often cost less to produce", it said.

There is little detail on where the revenue cap would be set, but the government said it would launch a consultation "shortly" and had been working closely with the industry ahead of it being introduced at the start of 2023.

https://www.xsmanchester.co.uk/news/uk- ... d%20beyond.

Ian.

[BullDog]

That's (not) going to be wonderful for accelerating new renewable energy projects and have the UK get back to energy independence. Our island is so rich in conventional and renewable resources. One might be forgiven for wondering how we managed to get in a mess where planned three hour electricity outages are likely this winter if it's a cold one with little wind.

Tidal power unlike wind, never stops. I'm unclear why we have not gone hell-for-leather for tidal from the get-go. High and low tides even happen at different times around the coastline!

Absolutely. Just one aspect of why the UK is incredibly energy rich.

I suppose one drawback of milking tidal for all we can, would be the moon would slow down and eventually crash into the Earth...

But I suspect Putin will get turfed out of Ukraine before that happens.

I'd risk it.