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The Total Cost of Subsidies to Renewable Electricity in the United Kingdom: 2002–2016

REF is often asked about the total cost of public support to renewable electricity generators, both annually and since the subsidies began.

The following table gives aggregate figures for the administrative years 2002–2003 to 2015–2016. Administrative years run from the 1 April to 31 March the following year.

Year RO (£m) FiT (£m) Total (£m)
2002-2003 278 278
2003-2004 416 416
2004-2005 495 495
2005-2006 583 583
2006-2007 719 719
2007-2008 876 876
2008-2009 1,036 1,036
2009-2010 1,119 1,119
2010-2011 1,285 14 1,300
2011-2012 1,458 151 1,608
2012-2013 1,991 506 2,498
2013-2014 2,599 691 3,290
2014-2015 3,114 866 3,980
2015-2016 3,743 1,110 4,853
Total (£m) 19,818 3,338 23,156

These consumer subsidies are derived from levies added to consumer’s electricity bills, and are therefore regressive in effect. That is to say, they have a disproportionate impact on lower income households compared with those with higher incomes.

The following chart represents the annual data, and adds onward cost projections from the Office of Budget Responsibility:

SubsidyCosts

Figure 1. Renewable electricity subsidy costs 2002 to 2016, solid lines (Source: REF calculations from Ofgem data), and onward costs, dotted lines, as projected by the Office for Budget Responsibility

As can readily be seen extremely rapid growth has occurred since 2010. Since this coincides with the Coalition government of Mr Cameron and Mr Clegg, it should be noted that the Feed-in Tariff was the creation of the previous government under Gordon Brown, when Ed Miliband was Secretary of State for the Department of Energy and Climate Change (DECC).

Subsidies are in principle capped at £7.6 billion (2011-2012 prices) per year in 2020 by the Levy Control Framework, though the framework has a generous 20% headroom. In fact, current oversupply of renewable capacity consented in the planning system suggests that this headroom could easily be overshot , and the OBR’s projections seem entirely plausible, indeed if anything an underestimate.

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Santa's Christmas present for wind farms

Over the Christmas period, high winds accompanying Storms Barbara and Conor combined with low demand for electricity to deliver a £7 million gift to the owners of wind farms in the form of constraint payments. Constraint payments occur when wind farms are paid not to generate, usually in periods when wind generation is surplus to demand. The bulk of these payments are made when wind generation cannot be used in Scotland, and there is insufficient grid capacity to export the energy to England. The cost of these payments is borne by electricity bill payers throughout the United Kingdom.

The peak payments over the current holiday season were made on Christmas Day, as summarised in the following table drawn from the REF datasets:

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Renewables planning activity in the last six months

As regular users of the REF datasets will know, our EU Target Tracker is updated monthly and based on the government’s Renewable Energy Planning Database (REPD). This month’s update has just been released, and merits a general comment.

As a rule, the totals change little month on month, with the major trends only being visible over longer timescales. Focus on the short term and net changes is a mistake. It is only by studying the changes at the individual planning application level over 6 months or longer that we can see the major trends and the impacts of changes in government policy.

To that end, we have compared the detailed planning data released for April 2016 with that released this week for November 2016. We looked at how many new applications have been submitted in the last half year, how many abandoned, how many were granted or refused planning permission, how many appealed by the developers, and how many have begun construction and operation. Predictably, 80-90% of the activity involves onshore wind, solar photovoltaic and offshore wind.

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New wind farm constrained off grid within days of opening

UPDATED 22 November 2016: SEE POSTSCRIPT BELOW

On the 28th of October, Falk Renewables announced that its newest wind power station, Assell Valley Wind Farm in Ayrshire, had begun generating

Two weeks later, on the 11th of November, Assell Valley wind farm had to reduce output on instruction from National Grid in order to cope with the on-going problem of Scottish wind farms generating surplus electricity which can neither be used in Scotland, because of low demand, nor exported to England because of the limited interconnector capacity between the two countries.

Assell Valley wind farm charged £76/MWh to reduce output, which is approximately twice the subsidy income foregone when the wind farm is constrained off. Further constraint bids from this wind farm were accepted on the 12th and 16th of November at the same price. At the time of this blog (21 November 2016) the total income from constraints to stop generating for this new wind farm amounted to just under £10,000.

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Government Data on Renewable Energy Development is Inconsistent and Unreliable

There are significant inconsistencies between the various sources of Government data on renewable energy deployment which undermine confidence in claims regarding progress towards 2020 targets and firm control of subsidy costs to the consumer. For example, the government’s Renewable Energy Planning Database (REPD) is the principal source for estimates of progress and probable future cost, but is inconsistent with five other data sources published by government, and also with estimates made by National Grid. What cannot be measured accurately cannot be managed adequately. Government needs to get a grip.

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The Increasing Cost of CO2 Emissions Reductions in the United Kingdom

A reduction in the use of coal and a rise of gas for generating electricity has slashed the UK grid emissions factor to around 0.26 tonnes of CO2 per MWh.  This has the economic consequence of increasing the subsidy cost of saving emissions through increased use of renewables.  It now costs around £169 to save a tonne of CO2 through use of onshore wind, and £267 for offshore wind. This is 6-10 times the estimated cost of environmental damage caused by a tonne of emitted CO2 and demonstrates how expensive and ineffective the UK renewables policy is in abating greenhouse gas emissions.

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UK Coal Benefits from Exceptionally High Wholesale Electricity Prices

The unusually hot September weather, and a resulting higher demand from air-conditioning and refrigeration units, over the past week has contributed to very high wholesale electricity prices, with coal stations being the main beneficiary.

Coal appears to have been called upon because several gigawatts of gas generation were offline. Furthermore, generation from the UK’s 14 GW of wind turbines during the period was, as is likely during a hot spell, modest, ranging from a high of 4GW to less than 1 GW, or from 29% to less than 7% of its capacity.

The prices charged by the coal generators during this period were exceptionally high. West Burton coal-fired power station, owned by EdF, charged up to £1,237 per MWh for providing an extra 1.5 GWh of electricity on Wednesday 14th September. This is approximately 30 times the usual wholesale price. Ratcliffe-on-Soar coal-fired power station, owned by E.On, charged up to £1,484 per MWh for providing extra power, earning an extra £6 million for the day.

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Wind Farm Constraint Payments over Easter 2016

Windy bank holidays, when wind power output is high but demand is low, can force National Grid to make significant constraint payments to wind farms, plus related payments to conventional generators, to cope with the surplus, unusable electricity generated by wind farms, usually because the windfarms are located behind a grid bottleneck.

2016 has proved to be the most expensive Easter holiday period to date for wind farm constraint payments, with a total of £3.7 million being shared between 39 wind farms.

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REF Interim Statement on DECC Announcement of CfD Auction Prices

The Department of Energy and Climate Change (DECC) has today published the results of the first round of competition for Feed-in Tariffs with Contracts for Difference (FiTs CfDs, hereafter CfDs), a subsidy mechanism that will run alongside the Renewables Obligation (RO) until the latter closes to new entrants in early 2017, when CfDs will become the sole subsidy mechanism for large scale renewable electricity generators.

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DECC Publishes Energy Price Impacts


The Department of Energy and Climate Change has today published the tables of policy-induced price impacts that were the subject of REF's Freedom of Information request and DECC’s response.

These price impacts were deliberately omitted from the 2014 issue of Estimated Impacts of Energy and Climate Policies on Energy Prices and Bills, in spite of their obvious importance and the fact that they had appeared in all previous issues of Estimated Impacts, as discussed in a previous REF blog.

The price impact tables have been usefully released as a spreadsheet annex to the 2014 document titled Supplementary tables - Prices and Bills 2014.

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