UK offshore wind farm

Treasury wind farm rules could cost UK billpayers £1.5bn a year

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The Energy and Climate Intelligence Unit (ECIU) has said UK government red tape seems to be ‘actively working against’ cutting energy bills, as Treasury rules threaten to prevent the greenlighting of more offshore wind projects.

The non-profit’s latest report has criticised the rules surrounding the financing of offshore wind farm projects, claiming the government could cause taxpayers to miss out of savings of more than £1.5bn a year from cheaper renewable energy. 

Constraints on bidding for wind power – due to be completed in September – could secure as little as 2GW of offshore wind, compared with around 7GW that could have been secured without government red tape, ECIU has said. 

A similar scenario took place last year, when the government contracted 1GW less than it could have. ECIU figures showed the round could have been worth up to £225m in savings each year, under forecast wholesale prices of £100/MWh.

“The government seems to be focused on North Sea gas licences and tax breaks for oil companies that won’t bring down bills, while tying up offshore wind farms that generate electricity cheaper than gas in red tape. What is going on?" said Jess Ralston, an energy analyst at the ECIU. 

“Even with inflation pushing costs up for offshore wind, it will still generate electricity much cheaper than gas power stations. Stifling wind farms pushes up bills. The Treasury’s rules seem to be actively working against bringing them down.”

Currently, wind farm auctions follow the government’s Contracts for Difference (CfD) scheme, which provide generators with the certainty of a pre-agreed ‘strike price’ for their electricity. This reduces the cost of financing and shielding bill payers from the volatility of the wholesale electricity market. Its success has led to cost reductions of 70 to 80 per cent over the last decade. 

However, government spending on wind farms is restricted by the Levy Control Framework, which is designed to limit spending on low-carbon power, paid for with a ‘green levy’ on bills.

This framework has resulted in a cap on the capacity of power generation that can be secured at CfD auctions and kept consumers from benefiting from lower energy bills, ECIU said.

The government has recently increased the budget for the current auction from £170m to £190m. However, analysts said this was likely to make little difference to the outcome of the auction.

“Every GW of offshore wind secured means the UK needs less, more expensive, gas for electricity generation,” the ECIU said. “And just 2.7GW, the same capacity as one large wind farm, would be enough to replace the new North Sea gas licences affected by a Labour government’s proposed moratorium on drilling, saving up to £600m a year.”

Lack of action on this issue could threaten Britain's ability to reach its target of achieving the capacity to generate 50GW from wind by 2030, the organisation claimed. 

A spokesperson for the Department for Energy Security and Net Zero said: “We do not recognise these figures – last year’s CfD scheme auction was the largest ever, issuing contracts to nearly 100 clean tech projects, and we increased this year’s budget to reflect the large volume of eligible applications received.

“The UK is a world leader in renewable technologies, with the four largest operational offshore wind farms in the world providing enough capacity to power the equivalent of at least 10 million homes per year.

“CfD is designed to protect generators against price fluctuations, and compares favourably to other international schemes. We understand there are supply chain pressures for the sector globally, and we are listening to their concerns.”

At the moment, wind power supplies more than a quarter of the UK’s electricity needs.The UK had the world’s largest fleet of offshore turbines until 2021, and is now second only to China. In 2022, 90 per cent of new global offshore wind was built in China and the UK, which are expected to lead the world until at least 2030.

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