UK subsidies for offshore windfarms likely to increase amid rising costs

[richfool]

From the Guardian:

The Guardian
UK subsidies for offshore windfarms likely to increase amid rising costs

Jillian Ambrose Energy correspondent
Fri, 10 November 2023 at 4:04 pm GMT·

The government is poised to offer higher subsidies for new offshore windfarms to avoid missing its green energy targets as developers grapple with a rise in supply chain costs.

Ministers are expected to set out within the next week a new starting price for the next subsidy auction, which is likely to offer higher levels of support to offshore wind developers.

The new auction ceiling, which is expected to be set out on Thursday, follows weeks of crisis talks between the offshore wind industry and Whitehall officials over the sector’s rising costs.

Offshore wind developers are struggling to move ahead with new projects, after costs in the sector soared by about 40% because of inflation across their supply chains and higher interest rates.

Concerns reached a peak after none of the companies hoping to build offshore windfarms in the UK took part in the government’s most recent annual clean energy auction, having repeatedly said that the maximum price the state would pay for electricity was set too low to make the projects economically viable.

One industry source said: “Government officials have been really engaged with the industry since the failed auction to make sure that fiasco doesn’t happen again. They’ve really been listening.”

That auction was described as “an energy security disaster” by the Labour party, which said that the UK could miss out on billions in investment and face higher energy bills if it derails the UK’s plan to triple Britain’s offshore wind power capacity by 2030.

The industry has called on the government to lift the starting price for the auction, which awards contracts to generate renewable electricity for 15 years at a set price based on the lowest bid. There have also been calls for contracts to be longer, which would allow for a lower price.

The government started its failed auction at a price of £44 per megawatt-hour after the previous round of bidding led to record low contract prices of just over £37/MWh. Officials are preparing to announce a new starting price of between £70 and £75/MWh to reflect the industry’s higher costs, according to a report by Bloomberg.

“These figures seem speculative. We won’t be sure what the government is going to do until the plans are announced next week,” a second industry source said. “We expect to hear more on Thursday, but there is so much going on in the government that we can’t even be sure of that.”

Rising costs have triggered concerns for the global offshore wind industry. Earlier this month, the Danish wind company Ørsted cancelled two major projects off the New Jersey coast in the US. Sweden’s Vattenfall has also scrapped plans for a huge offshore windfarm off the UK’s Norfolk coast because rising costs meant it was no longer profitable.

A spokesperson for the government said its clean energy auctions were “a UK success story” and it was “committed to a successful next auction round that includes offshore wind”.

https://uk.finance.yahoo.com/news/uk-su ... 29455.html

Let's hope that will "blow" a bit more life into the wind farm sector of the renewable energy companies. UKW's SP was down a little today. Though that said the news item is timed at 4.04pm.

[onslow]

So much for wind power being competitive with other forms of energy if hard pressed taxpayers need to continually subsidise them.

[88V8]

So much for wind power being competitive with other forms of energy if hard pressed taxpayers need to continually subsidise them.

Someone's going to pay for Net Zero, unlike nuclear power it won't be 'too cheap to meter'.

V8

[Urbandreamer]

So much for wind power being competitive with other forms of energy if hard pressed taxpayers need to continually subsidise them.

I question the use of the word "subsidy" in the article.

It's not precisely "unfair" but it is definitely misleading.

These auctions (which allow people/companies to pay the government for the right to build) are linked to a price for the energy produced.
If the wholesale price of energy is less than that, the government top's the income up to that point.
If it's over that the government takes that profit.

In addition the entire industry has a windfall tax at 35% until 2028.

Guess what, few, it any, are willing to subsidize the government to the extent that the government would wish.

To put it in perspective as per the Guardian quote, the CFD price was £44 per mWhr, while wholesale prices were £90 per mWhr in October (at the time).
https://www.ofgem.gov.uk/energy-data-an ... indicators

Let the government build it's own wind farms, coal, gas or peat power stations. Paid for of course by the tax payer.

Alternatively allow builders to take both risk and reward (if anyone would trust the government after the introduction of the windfall tax).
Then again the government can increase the CFD price offered at auction. What the Guardian described as subsidy.

[UncleEbenezer]

So much for wind power being competitive with other forms of energy if hard pressed taxpayers need to continually subsidise them.

When has there ever been a power source without government subsidy? Huge subsidies for dirty fuels such as oil and gas.

Of course that's only part of the picture. Government gives with one hand and takes with the other. So you can point to big subsidies and punitive taxes and be right both times. That applies both to dirty and renewable energy. But it raises the bar to entry for newer technologies such as tidal power!

[Urbandreamer]

So much for wind power being competitive with other forms of energy if hard pressed taxpayers need to continually subsidise them.

When has there ever been a power source without government subsidy? Huge subsidies for dirty fuels such as oil and gas.

Of course that's only part of the picture. Government gives with one hand and takes with the other. So you can point to big subsidies and punitive taxes and be right both times. That applies both to dirty and renewable energy. But it raises the bar to entry for newer technologies such as tidal power!

I suggest a bit of historical research. It's only in recent times, the last century or so, that has been true. In fact if you do your research it pretty much dates back to the advent of steam and later oil powered gun ships.

The subsidy on coal was part of military spending, a bit like Rome financing roads.

The government didn't get involved in electricity until 1925 more than 40 years after the first power stations (1881-2) and it wasn't nationalized until 1947.
https://www.nationalgrid.com/stories/en ... -energy-UK

As you say though, when the government competes and regulates the game is rigged by them.

PS, the 1881 power station was hydroelectric.
https://andrewsgen.com/photo/godalming/ ... lights.htm

[jaizan]

Someone's going to pay for Net Zero, unlike nuclear power it won't be 'too cheap to meter'.

We pay for this "NET ZERO" BS with high energy bills, whilst China is building dozens of new coal fired power stations every year. So net zero will not happen.

With the benefit of that cheap electric, their manufacturers are well placed to take even more market share off ours. I

[Urbandreamer]

Someone's going to pay for Net Zero, unlike nuclear power it won't be 'too cheap to meter'.

We pay for this "NET ZERO" BS with high energy bills, whilst China is building dozens of new coal fired power stations every year. So net zero will not happen.

With the benefit of that cheap electric, their manufacturers are well placed to take even more market share off ours. I

Did you try a web search?

https://www.offshorewind.biz/2023/06/30 ... port-says/

The country, which took over the top position in installed offshore wind capacity from the UK at the end of 2021, is well on its way to reaching the government’s 2030 target of 1,200 GW five years ahead of schedule, GEM says.

So, it would seem that they may actually not be doing too badly at 31% of energy needs met by renewable energy.
https://www.power-technology.com/news/c ... -capacity/

Of course you could be right about their manufactures taking market share.

China is emerging as a dominant player in global wind power generation, with the country's manufacturers supplying nearly 60% of installed capacity worldwide in 2022.

https://asia.nikkei.com/Business/Energy ... bal-market

But that doesn't matter does it if we chose not to invest in new power generators. Something that it seems that the government is intent upon.

[jaizan]

Did you try a web search?

Oh yes.
I was referring to new Chinese coal fired power stations. China adding a few wind turbines doesn't invalidate my statement about new Chinese coal fired power stations.

So, it would seem that they may actually not be doing too badly at 31% of energy needs met by renewable energy.
https://www.power-technology.com/news/c ... -capacity/

Not true.
31% of capacity does not equal 31% of energy needs met by renewables, as the wind only blows part time, so the average percentage of energy from wind will be far lower.

However you choose to interpret the figures, wind power is largely unfit for purpose, as the wind does not always blow.
At the moment, we solve the intermittency problem with gas fired back up generators.
This is very expensive and is not net-zero. No suitable or economic technology exists to provide reliable and durable zero carbon back up to cover a few days of very low wind output.

[idpickering]

The UK government raised its price support for building offshore wind farms by 66%, in a bid to revive its renewables push by attracting developers after they shunned a previous auction.

https://finance.yahoo.com/news/uk-boost ... _qC5LiHer_

I regard this as good news, being a shareholder in a number of companies involved in the sector.

Ian.

[UncleEbenezer]

I regard this as good news, being a shareholder in a number of companies involved in the sector.

Ian.

I too have quite a chunk of my net worth in the sector, and would regard it as much better news if the government backed away from this micromanaging and allowed the market to operate. Government's role should be limited to "polluter pays" supertaxes and incentives for novel up-and-coming technologies, neither of which apply to mainstream wind power - onshore or offshore.

[Dod101]

I do not understand enough about how the pricing mechanism works to comment sensibly but I regard the sector as but one component of a fairly broadly based portfolio. I do not have ‘quite a chunk of my net worth’ in the sector and never would.

But this is surely a pragmatic approach to the situation so that a price acceptable to both parties is found.

Dod

[BullDog]

Inevitable. There's been a number of significant projects getting cancelled both here and in the US due to numbers not adding up. I had been wondering if SSE might follow Orsted with cancellations. I was thinking Dogger Bank Phase 2 and 3 might not get built. So I suppose this is good news in respect of getting projects built. But bad news if more of the bill lands on consumers energy bills.

[daveh]

Inevitable. There's been a number of significant projects getting cancelled both here and in the US due to numbers not adding up. I had been wondering if SSE might follow Orsted with cancellations. I was thinking Dogger Bank Phase 2 and 3 might not get built. So I suppose this is good news in respect of getting projects built. But bad news if more of the bill lands on consumers energy bills.

There still may be cancelations because already consented projects may already have a CFD in place at a now uneconomic strike price. For example all three phases of dogger bank have CFDs awarded in the 2019 auction.

[BullDog]

Inevitable. There's been a number of significant projects getting cancelled both here and in the US due to numbers not adding up. I had been wondering if SSE might follow Orsted with cancellations. I was thinking Dogger Bank Phase 2 and 3 might not get built. So I suppose this is good news in respect of getting projects built. But bad news if more of the bill lands on consumers energy bills.

There still may be cancelations because already consented projects may already have a CFD in place at a now uneconomic strike price. For example all three phases of dogger bank have CFDs awarded in the 2019 auction.

That's correct, I would say. I don't know how economic DB Ph2 and 3 will be given what I understand is maybe 40% inflation in wind farm construction costs since CFD award.

[GoSeigen]

This is dumb. There is already too much wind generation in the UK. It'll inhibit development of better alternatives like nuclear and gas.
Complete waste of money. As usual from this govt.


GS

[Kantwebefriends]

UK Boosts Wind Farm Subsidies in pursuit of votes from chumps.

[Kantwebefriends]

UK Boosts Wind Farm Subsidies in pursuit of votes from chumps.

Or, I suppose, in pursuit of bribes. Who can tell? Probably both.

[Urbandreamer]

This is dumb. There is already too much wind generation in the UK. It'll inhibit development of better alternatives like nuclear and gas.
Complete waste of money. As usual from this govt.


GS

Why do you claim that there is too much? It's not that long ago that there were serious concerns that we would have enough energy to meet demand.
https://www.resolveenergy.co.uk/blog/ar ... -in-the-uk

A waste of money? Well the government could save some of our money by forcing us all to turn the lights off, AKA dictating rolling blackouts as some other countries have.

As for "better", I confess that I think we would have to discuss what is meant by "better". AFIK, there is only one country in the entire world that has done something about permanent storage of nuclear waste, and it isn't the UK. Burning gas has obvious CO2 issues and I know of no country that has achieved "Net Zero" yet. Of course that's ignoring where the fuel comes from. We are a net importer of both fuels. So using them doesn't exactly help our balance of payments, while we do get a bit wind.

[Urbandreamer]

UK Boosts Wind Farm Subsidies in pursuit of votes from chumps.

Or, I suppose, in pursuit of bribes. Who can tell? Probably both.

Is it not somewhat schizophrenic to reply to yourself?
Who can tell which of you we should address any response to?

Anyway, can I point out that this boards is part of "Investors Roundtable". It covers the geopolitical issues related to investing. In this case (the thread) how much investors can trust the UK government.

The UK government betrayed investors trust with the windfall tax that ends in 2028. They also thought it wise to try and sell the rights to build wind farms, restricted to supplying electricity at half the market rate. Those by the way are facts that anyone can look up.

Dare I suggest that a equitable deal with a untrustworthy second party won't happen ever. That just possibly said second party may have to pay over the odds to get a deal, if it is even possible?

Personally I suspect that the renewable IT that I hold may seek other part of the world to invest in. I know that they have recently sold some holdings.