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Public Accounts Committee Evidence on the Economics of Small-Scale wind generation in NI

On the 10th of April this year Professor Gordon Hughes of the University of Edinburgh submitted a paper on the economics of small-scale wind generation in Northern Ireland as formal evidence to the "Inquiry into Generating Electricity from Renewable Energy” conducted by the Public Accounts Committee of the Northern Ireland Assembly.

Professor Hughes gave oral evidence to the Committee on the 22nd of April. A full recording of the whole session, including the evidence of other witnesses, is available here: Public Accounts Committee Meeting Thursday 22 April 2021. Professor Hughes' evidence begins at approximately 1hr 43 minutes into the session.

Professor Hughes' paper given in written evidence is now available for download from the REF website: Small Wind Generation in Northern Ireland.

The evidence provided to the Public Accounts Committee is an extended development of a subject first broached by Renewable Energy Foundation in a blog post published on the 24th of September – "Extreme Subsidies to Small Wind Farms in Northern Ireland: A Bureaucratic Oversight? – which was the subject of extensive media coverage.

Those interested in this subject may also wish to read the October 2020 study of the same general topic by the Northern Ireland Audit Office: Generating Electricity from Renewable Energy, and a study contradicting the Audit Office’s findings, commissioned by the trade body Renewables NI from KPMG, An economic review of small-scale wind in Northern Ireland.

Professor Hughes' study of Northern Ireland wind can also be read alongside his two volume book length study of the economics of wind power in the UK and in Denmark, published by REF in November 2020: Wind Power Economics: Rhetoric & Reality 

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The reality of relying upon renewable power: a personal view

Professor Gordon Hughes has written the following blog describing his experience of sourcing reliable energy supplies to power a remote rural broadband network in Scotland.

I have written a number of papers on the costs and performance of wind power and other forms of renewable energy. Even serious empirical research provokes responses along the lines that any questioning of the merits of renewable energy amounts to original sin or blasphemy. There is little that I – or anyone – can do to convince those who treat the superiority of renewable energy as an article of faith. Still I wonder how much practical experience such commentators have of the reality of relying solely on renewable power in commercial applications. For this reason other readers may be interested in what I have learned as an economist faced with the practical issue of relying upon renewable energy.

The context is that about seven years ago I set up a small wireless broadband network serving my local community. This has grown into a social enterprise that provides high speed broadband service to about 600 properties in the South of Scotland. We are good at what we do and as a consequence we are expanding quite rapidly and cover a very rural area of about 1,500 square miles. We serve properties and settlements that BT/Openreach find too hard or expensive to deal with. To do this, we rely heavily on relays in locations that are far from the nearest source of power and operate off-grid. Since the South of Scotland from the Ayrshire coast to the North Sea has numerous wind farms a casual observer might think that off-grid operation is relatively straightforward. It would make our lives much easier if things were so simple!

Even though we serve isolated properties and settlements our customers are as concerned as urban residents about having a reliable broadband service. They or their children are equally unhappy about interruptions to their Zoom meetings or Netflix viewing sessions as any family living in the centre of Edinburgh. They understand that we have to cope with much worse weather conditions than most operators, so occasional outages due to extreme weather are unavoidable. We work to meet an overall target of 99.5% availability for our service. Since weather and other factors outside our control account for most outages, we design our network with sufficient backup to achieve at least 99.9% reliability for power supply at all of our relays –including the off-grid units. That is a difficult target when relying solely on renewable energy in Scotland. National Grid’s alarms this winter about meeting demand is merely a much bigger version of the same problem.

The problem for any off-grid site in Scotland is maintaining power supplies during the winter months from mid-November to end-February. Solar panels, which are our main source of off-grid power, yield little during this period – partly because the length of daylight is short and partly because the sun is very low in the sky which means that insolation levels are low even when the sky is clear. Almost all of our off-grid relays are sited in hilly areas at 350+ metres above sea level. You might think that these sites are all windy, but wind turbine yields are extremely variable. Extended periods (five or even ten days) of low wind combined with fog or mist and limited light occur three or four times every year. As an illustration we have just experienced a period of fifteen days (from December 26th 2020 to January 9th 2021) with minimal wind and solar output. Freezing conditions make such episodes worse because the performance of batteries degrades in sub-zero temperatures. Even with large amounts of battery backup we find ourselves having to transport replacement batteries all too often.

Image one showing Off-grid relay installation for local community broadband supply in Scotland Image two showing Off-grid relay installation for local community broadband supply in Scotland

Let me give a sense of the numbers. We choose our equipment and design our off-grid relays to minimize power consumption. Most of our relays have a continuous power demand of 40-60W, little more than an old-fashioned incandescent light bulb. We use 12V AGM deep cycle batteries  which cope better with variations in temperature and state of charge than regular car batteries. Lithium-ion batteries are, at least for now, too expensive and have too short a life for this kind of application. A continuous demand of 60W translates to 120 Amp-hours (Ah) per day. Even deep cycle batteries cannot be discharged completely without drastically shortening their life, so a bank of eight 120Ah batteries will power a relay for up to six days.

To operate such an off-grid relay at 99.9% reliability (less than 96 hours of outages per year for a set of ten relays), a standard relay with a continuous consumption of 50W has 900W of solar panels, a 350W wind turbine and eight  to twelve batteries plus some occasional load shedding – i.e. switching off non-critical links. This translates to peak generation capacity that is more than twenty times the continuous demand plus enough battery capacity to meet six to eight days of consumption. Allowing for the ancillary equipment - charge controllers, voltage monitors, etc - plus installation, the cost of such a setup is about £6,500 excluding VAT. That amounts to a capital investment of more than £100,000 per kW of continuous demand. For us the breakeven point between on-grid and off-grid is where the power cable would run for about 1,200 metres because the power loss on longer cables is too high unless they are run on three phases which increases the total investment.

This is the engineering reality of using renewable power with no grid backup. There is no dogma about the choice: we choose the best solution that is consistent with what our landowners will accept and our requirements. The lesson is the high level of redundancy that is necessary to provide the level of reliability that is expected by customers in modern economies. Bear in mind that 99.9% reliability is nothing special: the power company that serves the central area of Hong Kong has a reliability standard of 99.99% (less than one hour of outages per year) mandated by the government.

Viewed in a different light, it would be much easier for us at our off-grid sites if we could switch off relays between, say, midnight and 6 am whenever both batteries are running low and wind generation is low. That is what load shedding, referred to in many plans to cope with variability in renewable generation, means in practice – but without backup generators or alternative sources of non-renewable generation. But what happens to our customers who work with clients in Asia or who have families in Australia or California? Or what, on a larger scale, about hospitals, hotels and businesses who rely upon 24/7 availability of broadband and network services?

Thirty odd years ago when the current wave of enthusiasm for renewable energy started, many of us involved saw the huge benefits from bringing electricity to rural areas in developing countries. It was similar to using hand pumps to provide clean water in villages with no access to piped water. Whether it was getting access to crop prices, pumping water for irrigation or watching TV in the evenings, even a limited and irregular supply of power provided by a few solar panels, some batteries and an inverter can transform lives for billions of people living off-grid.

However, that is not the world of rich or even middle income countries today. We have built our economies and lives on the assumption of plentiful and almost completely reliable power, broadband and other networks. At the less critical end of the spectrum I invite any reader to monitor our support lines if there is an outage in the middle of the Scotland vs England rugby match. Even occasional buffering of a Netflix or Zoom stream is a “disaster”. Or consider the threat to people’s health and transport chaos caused when there was a relatively brief power outage affecting London and South East England in August 2019.

Some argue that the problems of ensuring high levels of reliability in a power system entirely dependent on renewable generation can be largely mitigated by scale, in effect by pooling sources of generation over a large area. There are, indeed, some economies of scale but they are smaller than might appear at first glance. It is still necessary to have high levels of excess capacity – not at one location but spread across the system – and any reduction in total capacity per unit of continuous demand is offset by the need for heavy investment in transmission capacity. In addition, on a small scale it can be easier to rely upon diversification across types of renewable generation, something which may not be feasible at a regional or national scale.

The central lesson from this story is that the key issue for power systems which rely upon renewable generation is not energy but system stability and reliability of supply. With sufficient capital it is easy to generate electricity at a marginal cost that is close to zero, but guaranteeing high levels of reliability is much more difficult and expensive. Our small network is a microcosm of the trade-offs that face rich economies that wish to switch entirely to rely upon renewable sources of power. Such systems will always be highly capital-intensive: that is an inescapable consequence of using current resources in place of stored energy in the form of fossil fuels. The trade-off is between:

• accepting some combination of a moderate increase in system capital-intensity plus a substantial reduction in reliability relative to the level that people living in rich countries have learned to expect; or
• paying for a large increase in the overall capital-intensity of power networks so as to maintain something close to current levels of reliability.

Politicians and enthusiasts for a renewable transition are strongly inclined to fudge such trade-offs. The managers of existing power systems are rarely willing to deliver unwelcome messages and may expect to benefit from the large capital spending that is required by the transition. As a consequence, most public discussion of the necessary choices relies on vapid good intentions rather than a realistic appraisal of the costs and benefits of the alternative options.

There is a further issue, which is that the costs and difficulties of relying upon renewable power are not evenly spread. Much of the support for green solutions comes from people who live in cities and other urban areas. Advocates give the impression that they have no idea what it is like to live in thinly populated rural areas, where distances are large and public services are either minimal and/or unreliable. In my case the distance to our local shop is 10 km and to the nearest town with basic public services is 15 km. And we live barely 40 km from Edinburgh, not in a remote part of the Highlands! Rural Scotland has lots of wind farms but little in the way of public services or, indeed, benefit from those wind farms.

This matters because it is rural areas that are likely to experience the most serious costs of a reduction in system reliability. To extend the personal example, we experienced a series of power cuts on Christmas Eve 2020 which caused our primary heating system to fail due to a power surge. It was out of operation for 6 days during the coldest weather of the 2020-21 winter to date. Such episodes have occurred in the past and we have invested in alternative sources of heating. Hence, we coped, albeit at a significant cost. That is the point. Around the world, the costs of reducing system reliability are often high but they fall unevenly on customers, especially on those living in rural areas. All too often those who offer simplistic calculations of the costs of relying upon renewable power take no account of the consequences for system reliability and the costs that fall on those who have to cope with less reliable power supply.

To emphasize the general point: the central challenge of the transition to renewable power is not the generation of electricity. That is the easy part. Rather it is the difficulty and costs of ensuring system reliability that must be addressed. Up to now, all electricity systems depend upon a legacy of investment in storable energy resources, primarily in the form of fossil fuels but with some storage hydro. None of the operators has any real idea of how they will function without being able to call on such backup resources. While scale will permit options that are uneconomic for small operators, the lesson from experience is that the investment and operating costs required to maintain system reliability in electricity systems dependent on intermittent renewables are likely to be very large.

Finally, we should bear in mind that not all communities or countries will – or should - make the same choices, in large part because conditions around the world vary so much. It is simply absurd to assume that choices which make sense for urban populations in Europe are either feasible or sensible in the remoter areas of Eurasia – for example Siberia or the huge extent of arid or semi-arid land from the Pamir Mountains to Mongolia. The inclination by some to frame the renewable transition as a moral issue is not the most constructive approach to dealing with the different trade-offs that have to be made in different circumstances. In many circumstances this can appear either arrogant or tone deaf when directed to populations and governments who face different choices and may feel that they are being asked to sacrifice the benefit of economic growth that those living in rich countries take for granted.

Gordon Hughes

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The Shetland Islands: Renewables and Corporate Interests

Renewable energy is often claimed to empower local communities as well as providing economic benefits. Part of the logic is that renewables seem to offer “energy independence”. The truth is less straightforward. In this article, co-authored with Professor Gordon Hughes of Edinburgh University, REF examines the case of the Viking Energy wind farm in the Shetlands and more broadly that of Scotland itself.

For 600 years from the mid-9th century to the mid-15th century, the Shetland Islands were the largest component of the semi-independent Viking Jarldom of Orkney and Shetland and as such affiliated with both Norway and Scotland. They were transferred to Scotland in 1470 in lieu of the dowry payable when Margaret of Norway married James III of Scotland. They became part of the United Kingdom with the Act of Union in 1707, and they have been associated with the United Kingdom for longer than they were part of an independent Kingdom of Scotland. That history is, perhaps, reflected in their somewhat ambivalent relationship with Edinburgh over the last fifty years.

Now, with the willing involvement of the Shetland Islands Council, the Scottish Government and the Ofgem (the UK’s energy regulator), the Shetland Islands are being converted into what will to many seem like a private colony operated by the power company SSE.

The role of the Scottish Government is no surprise: SSE is the largest company based in Scotland and has been consistently supported by the Scottish Government.

It is less clear why the Shetland Islands Council or Ofgem should facilitate this project, the key elements of which are:

(a) the construction of a large onshore wind farm, “Viking Energy”, with a capacity of 447 MW, and

(b) a 260 km largely undersea transmission cable with a capacity of 600 MW from Kergord in Shetland to Noss Head, Caithness in the north of mainland Scotland 

Peat landscape ShetlandMap showing Shetland in and North of Scotland

Since Scotland is awash with excess wind power, the electricity from Viking will be exported to the North of England – but only when there are no constraints on North-South transmission capacity. That is not a trivial qualification because wind generation capacity in Scotland already exceeds by a substantial amount the capacity of the cross border inter-connectors and the sub-sea Western Link. Thus, the reality is that for many hours in the year Viking Energy will simply add to the amount of wind capacity in Scotland that has to be constrained off the system, being paid (very generously) for that.

The role of Ofgem is particularly controversial. As the regulator it has a statutory duty to protect the interests of electricity and gas customers in the whole of the United Kingdom. More than 90% of the costs of the subsea transmission system and any constraint payments will be borne by electricity customers in England and Wales, who will see absolutely no benefit from them. This is taxation without any form of associated benefit or, indeed, representation in the decision. History suggests that taxation without either representation or offsetting benefits is a hard sell.

Ofgem also has a duty to promote renewable energy, but in a manner that is efficient and consistent with the long run interests of customers, so there can be no excuse for supporting a scheme that is unjustified in geographical and economic terms, and that justification, as we shall see, is doubtful.

The case of the Shetland Islands Council is more delicate still. The publicity material for Viking Energy claims large economic benefits for the Shetland Islands. Tracking down the real payments is more difficult. There is a commitment to pay £2.2 million in community benefit per year. Viking Energy suggests that it will have 35 employees in Shetland, amounting to about £1 million per year in take-home pay. Beyond that almost everything will be imported or arise outside Shetland.

On the most generous estimate the likely economic benefit in Shetland will be less than £5 million per year. That may sound generous, but cool reason suggests otherwise since that sum amounts to only £220/Shetlander per year.

The major beneficiary of the scheme seems likely to be SSE’s transmission business – SSEN Transmission (formerly SHET). Irrespective of the economics of the Viking wind farm itself, SSEN’s regulatory asset base – i.e. the permitted assets for which Ofgem, the regulator, allows the company to charge consumers – will increase by nearly 20% directly as a result of this project. Perhaps even more important, its investments in other transmission assets such as the subsea cable from Caithness to Moray and transmission lines down from the North of Scotland will be underwritten by adding additional power generation for transmission.

Stepping back from the issues of who gains and who pays, and also putting aside the extremely questionable wisdom of inflicting the environmental impacts of major industrial construction on such a unique wild land environment, we are left with the fundamental economics. Does a wind project of this nature make economic sense in Shetland?

Even though the wind turbines are located on land the project is conceptually identical to the development of any offshore wind farm. It is constructed in a remote marine location and the power generated has to be transported a long distance to the major mainland centre of power consumption in the North of England, a straight-line distance of about 720 km.

When operating, the wind power from Viking will displace marginal gas-fired generation. This will lower carbon dioxide emissions by between 0.35 and 0.40 tonnes per MWh. At a carbon price of £30/tonne of CO2 (tCO2) – well above the current level – the value of this saving is £11–£12/MWh. Based on the long run gas price, the saving in the variable operating costs for gas generation will be £25–£30/MWh. There will be no saving in the fixed costs for gas plants as these will be required for backup and to ensure system stability. Thus, the marginal value of wind power delivered to the North of England will be in the range £36–£42/MWh.

On the cost side there are two elements that must be considered. The first element is comprised of the costs of transmitting power from the North of Scotland to the North of England and then using it to meet English power demand. The transmission losses over multiple transmission zones will be at least 5%. On top of that there will be transmission costs of at least £15/MWh (from Caithness to the North of England) and balancing costs of at least £12/MWh (based on the lowest estimate). Hence, the net value of power from the Viking project supplied to the North of England will be no more than £15/MWh at Caithness, i.e. where the power is delivered to the existing UK transmission system. It may, of course, have cost a great deal more than that to generate and transmit.

The second element to consider, therefore, is the cost of building and operating the wind farm itself and the subsea transmission line to Caithness. Published estimates of the cost of the Viking wind farm stand at about £600 million, but this seems likely to be an optimistic understatement of the type familiar from many other large infrastructure projects as various as the Channel Tunnel and the Scottish Parliament.

Based on the analysis of the actual costs of onshore wind generating stations, and allowing for the premium incurred in building a wind farm in Shetland, it seems likely that the actual cost of building the wind farm will be nearer £750 million at 2018 prices. Actual operating costs are likely to start at £85,000 per MW at age 1 year and will increase to £125,000 per MW at age 15, both at 2018 prices. Using a cost of capital of 4% in real terms the actual cost of the wind output from Viking is likely to be about £58/MWh at 2018 prices. The capital cost of the transmission line is reported as about £600 million. With a cost of capital of 3% the cost of transmission from Shetland to Caithness will be about £24/MWh at 2018 prices.

As noted, the Viking project is in effect an offshore wind farm that happens to be located on land. Thus, it should cover transmission costs to the nearest point on the UK mainland on the same basis as other offshore wind projects. On this basis, the net value of power at Caithness is £15/MWh while the cost of producing and delivering power to Caithness is £82/MWh. Even allowing for some error in the cost estimates described above it is highly unlikely that this project is a cost-effective way of meeting power demand in the GB market.

Expressed in terms of the cost of reducing carbon dioxide emissions the calculations imply a minimum cost of over £310/tCO2 if we assume that all power from the Viking project displaces gas generation. However, that is improbable because Viking output will be highly correlated with onshore and offshore wind output in the rest of the UK. In many periods Viking output will simply displace other wind generation – either in Scotland or offshore – for reasons of transmission grid stability. As a consequence, the actual cost of reducing emissions using the Viking project is likely to be more than £550/tCO2. That is extremely high, much greater than even extreme estimates of the Social Cost of Carbon, and wildly in excess of mainstream values such as the $29/tCO2 assumed in the Stern Review. Abatement at the cost likely to be incurred at Viking is not an economically rational climate policy; the cure is worse than the disease. And this, as noted earlier, is without taking into account the local environmental impacts of the scheme.

There is another way of thinking about the Viking Energy project. SSE claims, when bidding for CfD contracts, that it can supply offshore wind to the mainland grid at £45–£48/MWh (2018 prices) from projects such as the Seagreen and Dogger Bank offshore wind farms, with delivery dates in 2023. If these bids are taken at face value, there can be no justification for supporting a project due for completion in 2024 that will have much higher costs when the electricity is delivered to the main demand centres in England. SSE can’t have it both ways. If the Seagreen and Dogger Bank bids are realistic, then Viking is poor value for money. If Viking is good value, then there is something wrong with the Seagreen and Dogger bids.

We can conclude, therefore that, when seen in the larger context, the Viking project is likely to be a very expensive way of reducing emissions or meeting national power demand. But what about meeting Shetland’s power needs? Currently the island relies primarily on an ageing set of diesel generators at Lerwick power station, plus power from gas generation at the Sullom Voe terminal. The Lerwick station is operated by SSE but the units are due to be retired by the mid-2020s. It is not possible to rely solely upon wind generation from the Viking project – and/or other wind farms in Shetland – because the supply is intermittent and requires either storage or backup generation capacity. The Shetland to Caithness transmission cable could import power from the mainland, but that will involve substantial market and operating risks. Hence, in 2013 SSE proposed a scheme involving a 90 MW replacement for the Lerwick power station which was rejected on grounds of cost.

There is a serious conflict of interests with respect to the role of SSE, a conflict that has significant implications for customers in both Shetland and the rest of Great Britain. It is extremely surprising, to say the least, that Ofgem, the Scottish Government and the UK Government have tolerated a situation in which the various parts of SSE – as wind farm developer, transmission operator, power distributor and plant operator – have been allowed to determine the design and assessment of projects whose costs will ultimately be borne by British electricity customers via a variety of what are, in effect, taxes.

Neither is this arrangement good for Shetland because the islands find themselves at the mercy of decisions that are driven by the complex internal finances of SSE’s various subsidiaries. The role of the Shetland Community Trust (SCT), which financed a significant part of the early development of the Viking project, is especially questionable. At the outset it seems to have thought that it could be an equal partner in the project, but both project economics and the accounts for the various limited liability partnerships suggest otherwise. There is a lesson here for all local development trusts. The imbalance of resources and expertise mean that all of the advantages lie with the commercial developer in almost all joint ventures between developers and community organisations. In the Viking case this imbalance was reinforced by SSE’s size and its control of both transmission and distribution in Shetland and the North of Scotland as well as its larger relationships with both regulators and the Scottish Government.

SSE may have sincerely thought that what it was proposing was good for the local economy, but it is of course true that arguments of that kind have frequently been used to defend the behaviour of colonial governments and dominant external investors in the past. We tend now to view such arrangements in a different light, whether in Africa or in Scotland. Certainly, SSE has done little to avoid either the appearance or the reality of conflicts of interests in its dealings with the Shetland community.

The situation in Shetland highlights similar issues in the rest of Scotland in which the multiple roles of Scottish Power and SSE, whether in generation, distribution and transmission, frequently give rise to conflicts of interest and incentives to transfer costs from power companies to English and Welsh electricity consumers. One irony is that the SNP administration in Edinburgh, which rests its case for independence on membership of the European Union, has resolutely failed to act on EU Directives that require the unbundling of generation, transmission and distribution to avoid precisely such conflicts of interest as can be observed in Scotland. Electricity accounts for a significant fraction of Scotland’s exports but the population of Scotland, like the population of the Shetland Islands, gains very little benefit from this activity. Bluntly, the electricity sector in Scotland is highly capital-intensive and generates limited added value for consumers. At present this reality is concealed by a distorted market, and distorted prices. If those distortions are removed, the truth would become painfully evident. If Scotland wishes to avoid becoming a text-book example of a dangerously unbalanced economy it must seek to avoid over-reliance on a very small number of companies in one industry.

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Wind Power Economics – Rhetoric and Reality

The following is the text accompanying the talk given by Professor Gordon Hughes, School of Economics, University of Edinburgh on 4 November 2020 to launch his two new reports for REF on:

Wind Power Costs in the United Kingdom  and

The Performance of Wind Power in Denmark

For a recording of the event, please click here.

It is difficult to make predictions, especially about the future. [Attributed variously to Niels Bohr (Nobel Prize in Physics) and Sam Goldwyn (movie mogul)]

The theme of my talk is the disparity between predictions about the future costs and performance of wind power (especially offshore wind) - the Rhetoric - and the actual evidence that is available on what it costs to build and operate wind farms and the amount of power they produce over their lifetime – the Reality.
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Wind Power Economics Webinar

WEBINAR - 4th November 2020 at 11.00 am

The Renewable Energy Foundation would like to announce the publication of a major new study:

Wind Power Economics: Rhetoric and Reality

written by Professor Gordon Hughes of the School of Economics at the University of Edinburgh. This study, which will be published on November 4th 2020, uses a unique database on the actual costs of building and operating more than 350 wind farms in the UK. In addition, it provides a detailed analysis of the performance of more than 9,500 wind turbines in Denmark focusing on their cumulative output and reliability.

The study can be obtained from the Renewable Energy Foundation website from midday on November 4th 2020.

To accompany the release of the study, the Renewable Energy Foundation will host a Webinar on November 4th 2020 at 11.00 am at which Professor Gordon Hughes will be the main speaker. He will present the main findings of his study and answer questions on his work.

There is no charge for joining the webinar but please note that the number of participants is limited to 100. To obtain the details of how to join the webinar please email  This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

 

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Forthcoming Report on Wind Power Economics: Rhetoric and Reality

The Sunday Telegraph has today reported on REF’s forthcoming major new analysis by Professor Gordon Hughes, under the title Wind Power Economics: Rhetoric and Reality.

The study contains two volumes, one on the Performance of Wind Power in Denmark and the other on Wind Power Costs in the United Kingdom.

On the basis of a large and detailed statistical analysis of audited accounts and other performance data Professor Hughes shows that far from falling dramatically, capital costs for wind power have come down only slightly, and that Operation and Maintenance (O&M) costs required to maintain energy yields are actually rising sharply, throwing the medium and longer term economics of the entire enterprise into jeopardy.

The study will be published shortly with a webinar, and anyone interested in being added to the mailing list for that announcement should write to us at REF at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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Extreme Subsidies to Small Wind Farms in Northern Ireland: A Bureaucratic Oversight?

REF will shortly publish major new analysis by Professor Gordon Hughes, under the title Wind Power Economics: Rhetoric and Reality.

The study contains two volumes, one on the Performance of Wind Power in Denmark and the other on Wind Power Costs in the United Kingdom.

On the basis of a large and detailed statistical analysis of audited accounts and other performance data Professor Hughes shows that far from falling dramatically, capital costs for wind power have come down only slightly, and that Operation and Maintenance (O&M) costs required to maintain energy yields are actually rising sharply, throwing the medium and longer term economics of the entire enterprise into jeopardy.

The study will be published shortly with a webinar, and anyone interested in being added to the mailing list for that announcement should write to us at REF at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

In the course of preparing this work and discussing it widely with colleagues we have become aware that the findings are surprising to many, particularly to some industry players who enjoy special circumstances unrepresentative of the overall wind sector.

An example of these special circumstances may make the point clear. Northern Ireland has several hundred small (< 250 kW) and apparently old turbines that are still making money. Some might say, and indeed REF has heard it said, that the empirical experience of these wind turbine operators should count for more than statistics, even if the statistical analysis is based on real cost data from audited accounts and authoritative records of real generation such as that behind Professor Hughes’s study.

While speciously persuasive this proves to be a good example of how dangerous it is to rely on limited, personal or anecdotal information when forming a general view. Uncle Wilfred may indeed have lived to a hundred on a diet of cigars and whiskey, but that is no recommendation for the rest of us. By the same token, closer examination of the situation in Northern Ireland shows it is no guide to the rest of the sector.

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Escalating UK Grid Management Costs: Consumers Feel the Chill of Sub-Zero Electricity Prices

A series of unwelcome records were broken over the Bank Holiday weekend period, from Friday the 22nd to Sunday the 24th of May, 2020.

(i) Constraint payments made to wind power to reduce output within the Balancing Mechanism were £9.3 million - the highest ever paid for any three-day period (Sunday Telegraph “Wind Farms Paid Record £9.3m to Switch off their Turbines”).
(ii) System electricity prices dropped below zero for long periods with a record average price of -£17 per MWh being recorded on the 22nd.
(iii) Intermittent day-ahead prices used to calculate CfD subsidies averaged -£10 per MWh on the 23rd, the first time the average for an entire day has been negative.

The cost to the consumer of balancing electricity over this chaotic weekend is in excess of £50 million (The Times “National Grid pays out £50 million to turn power down as lockdown hits demand” .

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Low Wind Output in Scotland Cuts Constraint Payments… and Exports

There have been no constraint payments to Scottish wind power in the UK’s Balancing Mechanism (BM) since the 21st of April and up to the date of writing (7th of May). This is welcome after a very expensive start to the year when consumers paid £95 million to discard Scottish wind output from the 1st of January to the 21st of April..

But the reduction in constraints is not the result of improved balancing techniques or the return to service of the hitherto troubled Western Link interconnector. Rather, it is the result of low wind generation in Scotland reducing congestion within the country and over the links to England. Consequently exports to England have been declining for some weeks.

The figure below graphs average daily transfers of electricity (MW) across the Anglo-Scottish interconnectors, as reported by National Grid and archived by REF.

Export Scotland to England 2020

Figure 1: Average daily electricity transfers (MW) across the Anglo-Scottish interconnectors in 2020 to date (blue line), with a running seven day average of the averages (red line). Gaps in the chart occur when a complete set of daily data was not available or obtained. Source: Chart by REF: Data from National Grid.

UK wind output was high in the months of January (6.3 TWh) and February (6.9 TWh), fell back in March (5.6 TWh), and slumped in April, when it generated only 3.4 TWh. So far, wind output in May is also low. Indeed, Scotland is now frequently importing electricity, even at this time of extremely low load in the GB system.

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Why have Windfarm Constraint Payments Spiked in 2020?

The cost of excess wind power in the first two months of 2020 amounted to £72 million in payments to wind farms to reduce output, mostly (£69 million) in Scotland. Last year’s annual total of £139 million was a record, but does not seem likely to remain so for long.

Comparing payments in January and February for all years back to 2012 we find that the total for those months in 2020 is nearly four times that in the next most expensive year, as shown in the following chart.

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