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Ofgem, MoD attack pricey terror-friendly windmills

Military, regulators take Quixotic stance

The smart choice: opportunity from uncertainty

Britain's fledgling wind power industry has suffered blows from two directions over the weekend. The energy regulator, Ofgem, has attacked the system of subsidies given to wind-farm operators, saying it channels excessive profits to owners and does little to stimulate new build. On top of this, the ministry of defence (MoD) has said that wind farms cause unacceptable gaps in radar coverage, to the extent of leaving Blighty vulnerable to 9/11 style airborne attacks.

The Financial Times reports this morning that energy investors are scrambling to acquire wind capacity because of the massive subsidy payments they bring. The paper quotes one analyst as saying: "It's a bonanza. Anyone who can get their nose in the trough is trying to."

The trough in question is kept filled by electricity consumers, though this is not made clear on the bills. The mechanism by which it occurs is called the Renewables Obligation (RO) under which suppliers must get a proportion of their energy from renewables operators. Wind farms are the main way this can be met in the UK, but the scarcity of the farms has pushed the prices to record levels.

Andrew Wright, markets honcho at Ofgem, told the FT that this wasn't working the way it was supposed to.

“The RO is a very expensive way of providing support for renewables," he said, adding that wind farms could make revenues of £100 per megawatt-hour at present.

That price equates to 10p per unit at the point of supply to the grid, without any allowance for transmission, supplier costs, profits and so on. Such prices serve to significantly increase the average price paid per unit by consumers. (Fossil and nuclear power stations can produce energy at well under 5p per unit.)

The idea is that consumers should pay the extra in order to encourage the building of wind farms; but according to Ofgem, this isn't happening. New windmills are not being built, and the extra cash paid by consumers is simply pouring into energy firms' coffers.

“If you did not have the RO, you would not see any wind farms being built," responded Kevin McCullough of RWE Npower, a large UK wind-farm operator. He also disputed the Ofgem figures, saying that his firm's windmills actually pulled in 7.5 to 8.5 pence per unit.

Power companies are very receptive to the UK's policy of having a mandated, smallish proportion of energy supplied by renewables. This allows them to sell limited amounts of high-priced energy and large amounts of cheaper juice from coal, gas or nuclear into the same market. The end result, as in any case where a product can be sold at different prices, is more money to the seller than would otherwise be the case. (This is why companies love to charge UK customers higher prices than in the US, and why many products are sold with premium branding and also via unbadged channels.)

Thus the energy companies' incentive to build new wind farms is limited in scope; they would rather have small numbers and high prices in this sector, widening the gap between renewable and cheaper supplies and so maximising profits.

Another reason new wind facilities are not being built is delays caused by planning permission, and it has emerged that MoD is behind many of these. The defence authorities have objected to many new planned turbine farms on the grounds that the whirling blades have terrible effects on their low-level air defence radars, creating blank spots.

The MoD fears that, if large numbers of wind farms are built, it will be unable to detect and track aircraft across significant areas of Blighty. This could leave the RAF unable to intercept suicide-piloted airliners or other airborne threats. It could also, according to defence chiefs, make military low-flying training unacceptably dangerous.

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