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REF Blog

Are Fossil Fuels Subsidised in the UK?

In discussions of subsidies to renewables it is sometimes claimed that fossil fuels in the United Kingdom receive greater support. This misunderstanding arises from the confusion of two quite different things:

a) subsidies to investors in renewables which increase consumer costs

and

b) Lower VAT (5% not 20%) on gas and electricity used by domestic energy consumers, and tax breaks to oil and gas companies, both of which will reduce costs to consumers.

It is obviously misleading to treat these two effects as if they were similar in economic character. However, this is increasingly common, even amongst those who might be expected to understand these matters.

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Constraint Payments: Misunderstandings and Misrepresentations

REF was the first organisation to draw attention to the excessive prices demanded by windpower to reduce output (constraint payments), and the resulting publicity is in part responsible for the fall in prices, though these are still, in our view, excessive.

The wind industry has responded to this criticism by attempting to confuse the public with claims that other generators are paid more to be constrained off. This is untrue, but unfortunately was made the central argument in a piece in the trade journal, Utility Week:

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REF correspondence with Scottish Government on Wind Farm Performance

On 26 April 2013, REF wrote to the Scottish Government seeking the details underpinning a Scottish Parliamentary Answer concerning wind farm performance. We received a reply on 30 May 2013 which has prompted the following answer.
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Reply to DECC's comment on John Constable's Civitas Paper

The think-tank Civitas has today published a short paper, "Are Green Times Just Around the Corner?", by REF's director, John Constable.

The paper asks whether a low carbon economy can sustain contemporary standards of living, and argues that it can only do so if the costs of renewables fall to make them competitive with current fossil fuels. The paper further suggests that subsidies to renewables are actually counterproductive, and discourage invention and innovation.

 

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New Article in Standpoint

The May issue of the magazine Standpoint carries a new article by John Constable, REF's director, in collaboration with Patrick Heren, "An Alternative To Our Reckless Energy Gamble"

The piece argues that the costs of the current low carbon energy policy are dangerously extreme, and that consequently there is a high risk that consumers will become disenchanted with the climate agenda. Instead, the authors suggest that government should use gas generation as a means to reduce emissions in the short term, while generating wealth to fund a new innovation based energy policy.

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REF Writes to Fergus Ewing MSP

REF has today (26 April 2013) written to Mr Fergus Ewing, MSP, Minister for Energy, Enterprise and Tourism in the Scottish Government.

The immediate cause is the following Question and Answer exchange between Mr Ewing and Mr Murdo Fraser, MSP concerning the study by Professor Hughes of wind turbine performance degradation and economic lifetime:

Murdo Fraser (Mid Scotland and Fife) (Scottish Conservative and Unionist Party):
To ask the Scottish Government, further to the answer to question S4W-13239 by Fergus Ewing on 19 March 2013, what evidence it has to support the assertion that (a) the research carried out was fundamentally flawed and (b) modern turbines are more efficient. (S4W-13869)

Fergus Ewing:
In our view, the fundamental flaw in the report is its contention that a 15 year old wind turbine can be described as “mature”. A turbine that has been operating for 15 years must clearly have been developed and installed at a time when the technology was still very much immature. There is a wealth of information on the subject of wind turbine efficiency, available not only from the industry itself but also from credible independent commentators such as Bloomberg New Energy Finance (NEF). Analysis by Bloomberg NEF provides evidence that global capacity factors for onshore wind turbines have increased by 13 percentage points from a value of 21% in 1984 to 34% in 2011. Efficiency improvements such as better wind to power conversion especially at low wind speeds, better fluid dynamic modelling to inform device placement and more reliable machines have all contributed to the increased output from modern and thus genuinely mature devices.
(Source: http://www.scottish.parliament.uk/S4_ChamberDesk/WA20130419.pdf)

This is, in our view, a very weak response, as explained in our letter to Mr Ewing:

Mr Fergus Ewing, MSP,
Minister for Energy, Enterprise and Tourism
By email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it &
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
26 April 2013


Dear Mr Ewing:

Scottish Government Answer to a Parliamentary Question from Mr Murdo Fraser MSP

I have just seen your most recent response to a question (S4W-13869) tabled by Mr Fraser relating to the study by Professor Hughes on the degradation of the load factors of wind turbines over time (published by Renewable Energy Foundation in December 2012).

You will not be surprised to hear that we take a close interest in what is said about work that we have released, and we are always happy to receive comments and constructive criticism. I was aware that, in responding to an earlier inquiry from Mr Fraser (S4W-13239), the Scottish Government had previously referred to Professor Hughes' study as “flawed”, so I was hoping that the Answer to Mr Fraser's follow­up question might clarify this assertion.

However, the response drafted by your civil servants does not appear to advance our understanding of the issue. It misrepresents what Professor Hughes said and relies upon global averages that are neither consistent nor relevant to the experience of wind power in the UK. To be specific:

(a) Professor Hughes studied the performance of all wind farms operating from 2002 to 2012, not just fifteen year old turbines. The bulk of his sample consisted of wind turbines installed after 2004. A significant degradation in performance can be observed even for turbines installed within the last five years.

(b) The study by Bloomberg NEF which you cite does not take account of any of the factors – location, wind availability, average age, operating regimes, etc – that must be considered in any careful analysis of the performance of wind turbines. We are simply perplexed that your staff should consider the Bloomberg study relevant to the issues raised by Professor Hughes.

In summary, your answer does not, in fact, produce any specific contrary evidence. Consequently, we conclude that, at present, it is reasonable to evaluate policy on the basis that Professor Hughes' findings provide the best description of what has happened in the past and is still happening.

Current subsidies to wind power are in effect a very large gamble funded by electricity customers. Professor Hughes' work provides strong empirically grounded analysis suggesting that the bet will not pay off. It appears from your answer that the Scottish Government is relying on the unsupported and implicit assumption that historical evidence, as produced by Professor Hughes, can be ignored because things will certainly be radically different in the future.

That is clearly a dangerous assumption, and we suggest that the Scottish Government would do better to engage with the data, employing the same analytical rigour that Professor Hughes has brought to the subject.

We would be very pleased to discuss matters with you or your officials. I have no doubt that Professor Hughes would be happy to be involved as well. This is, after all, a matter of public interest.

Yours sincerely,

John Constable

Director

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DECC Response on Off-Shore Wind Costs

On the 4th of February, REF wrote to the Secretary of State for Energy & Climate Change, The Rt Hon Ed Davey, MP, defending our calculation of the future costs of the offshore wind program, which DECC had called "pure speculation". We also criticised the Department's assumption that costs would come down in the future, and suggested that if anyone was speculating it was DECC. We received a response yesterday, with additional underlining in Mr Davey's own hand.

In his response, the Secretary of State shows that he trusts the wind industry when they promise to cut costs in the future. That seems to us an extremely hazardous position to take. Bluntly, a subsidy-seeking industrial sector might say anything to get their foot in the door, and their undertakings should be treated with caution, particularly when the consumer burdens entailed are so vast.
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Can Renewables be Economically Competitive?

If we have learned anything over the last ten years of arbitrary targets and policy mandated income support to renewables, it is that the sector has failed to reduce its costs significantly, and, far from learning to stand on its own feet, is content to be a long-term subsidy dependent. This won't be acceptable to the consumer in the medium let alone the longer term, and it fails to provide an economically compelling low carbon example to the developing world.

Clearly, something has to change, and will change. If renewables are to have a role in that new dispensation they will have to improve dramatically. But how? What are the major problems that have to be solved before they are fundamentally economic and can make their way in the world without special and unsustainable commercial favours?

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Are Green Times Just Around the Corner?

The following talk was given at a meeting of the All Party Parliamentary Group on Rebalancing the Economy, at the House of Commons at 10.00 on the 13th of February 2013. The session topic was The Cost of Energy. Other speakers were Tamaryn Napp (Imperial College London), Professor Alan Riley (City University Law School), and Jeremy Nicholson (Director, Energy Intensive Users Group).

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Costs of Offshore Wind Farms

On the 3rd of February the Sunday Telegraph published an article about the costs of Round 3 offshore wind, and used cost estimates generated by REF: "Foreign Firms' '£100bn wind farm subsidies'" 

The Department of Energy & Climate Change was quoted as saying that our figures were "based on pure speculation". This is untrue, and we have written to the Rt Hon Ed Davey, Secretary of State at the department to point this out. Here is our letter.

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