Rampion Offshore Wind Farm Lifetime Subsidies will Total £2.5 Billion
Glogal Warming Policy Forum
Dr John Costable
30 May 2018
The 400 MW Rampion Offshore Wind Farm is nearly complete, and has now formally opened its Operations and Maintenance headquarters in Newhaven. This wind farm alone will add £2.5 billion in total to the cost of UK electricity over its approximately 20 year lifetime, that being the total subsidy to be paid at a rate of about £126 million a year over the two decades.
Parliamentarians and other decision makers have a fatal weakness for policy outcomes forming a suitable background for a photograph, and Maria Caulfield, MP, who represents Lewes in Sussex, duly turned up to wear the hard-hat-and-hi-viz-jacket and give an upbeat speech at the opening of the Newhaven headquarters of the Rampion Offshore Wind Farm, which is currently approaching completion.
No politician hoping for re-election can be expected to be on oath in such situations, and the phoney absurdity of these ceremonies is perhaps the defining and soul-destroying occupational hazard of modern constituency life. Who knows what MPs really think when they open a wind farm. Perhaps they are not altogether sure themselves.
If so, their uncertainty would be intelligible if not forgivable, for good information is hard to come by, and in spite of increasing awareness in some circles of the underlying economic realities of the UK’s renewables programme, the industry has wisely relied on public misconceptions and patiently stood its ground while refusing to talk about the subsidies unless absolutely forced to do so.
Stations currently commissioning, like Rampion, even benefit from the fact that even those members of the public who are interested in such matters are under the impression that the whole orgy of subsidies is over. Hasn’t the Renewables Obligation closed? Hasn’t the Treasury put a freeze on new renewables subsidies until the mid 2020s at the earliest? Yes, yes.
The RO closed to new entrants in 2017, and the moratorium imposed by the Treasury in last year’s Autumn Budget is perhaps the most significant and under-publicised climate policy decision of the last five years or so. – The game is clearly up. But if so, what is Rampion playing at? If you turn for such economic information to the wind farm’s otherwise very informative website you will be disappointed.
The developers are only too happy to tell you that the project has created a number of jobs locally, that it is making a substantial sum available for a local community fund, that it will generate enough electricity for 350,000 homes, that it will prevent the emission of a certain quantity of carbon dioxide, and that they are investing £1.2 billion in the project. Of their likely income you will find nothing.
But £1.2 billion is a great deal of money, and represents the disposition of a vast bulk of real world resources, about £3m/MW in fact, perhaps four or five times as much as the capital cost of a Combined Cycle Gas Turbine (CCGT). Sensible companies don’t spend on that scale without a very clear idea of how they will make a return. What could possibly motivate the site’s owners? (Those owners, by the way, are E.ON (50.1%) the Green Investment Bank (25%), now owned by Macquarie Group Limited, and, curiously, the North American energy company, Enbridge (24.9%), whose pipelines move about one fifth of all the natural gas consumed in the United States.)
The answer is subsidies, of course, for the Rampion Offshore Wind Farm has a legacy entitlement under the so-called “grace period” of the Renewables Obligation. Ofgem’s public register tells us that this station (R00034RPEN) was accredited on the 26 November 2017. It will therefore receive 1.8 Renewable Obligation Certificates (ROCs) for every one of the approximately 1,400,000 megawatt hours that its owners believe it will generate.
At current ROC prices that will amount to about £126 million pounds a year in subsidy. The wholesale price of the electricity will only add about another £60 million a year, so roughly two thirds of the annual income of the project will be non-market public support.
Put another way, using CCGTs instead of Rampion, the UK would have almost three times as much electricity for the same cost, and have it when that energy is on demand rather than at the mercy of the weather.
Furthermore, these subsidy entitlements are for the long term, and over the twenty year lifetime the total subsidy to Rampion will come to about £2.5 billion.
This is the hangover from the renewables party, and why the official projections for renewables subsidies, such as those presented by the Office for Budget Responsibility (OBR) continue to increase from the current level of £8.8 billion per year to £11.5 billion per year in the period 2022 to 2023 (see tab 2.7 in the OBR’s “March 2018 Economic and fiscal outlook – supplementary fiscal tables: receipts and other”), in spite of the closure of the schemes and the refusal of the Treasury to introduce replacements.
The UK government is very prone to bragging about the falling cost of offshore wind, which it demonstrates by pointing to the £57.50/MWh bids made in the last round of Contracts for Difference (CfD) auctions and applying to projects due to start generating in the early 2020s.
Some of us don’t believe that those bids are actually economic, but government appears to take them at face value. In which case, why is another offshore wind farm, Rampion, commissioning only a few years before, set to receive more than double that CfD bid at roughly £140/MWh? One of these two figures must, surely, be a long way from the truth. Which is it?
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