Darling's £0.5bn offshore windfarm 'leccy-bill stealth levy
'3m windmill-powered homes' claim is pure spin
Budget 09 A lot of people are wondering how the British government can deliver colossal bank bailouts and pay rapidly-climbing dole bills - all the while collecting less taxes as people are laid off and companies founder - and yet still find money to subsidise green energy. Chancellor Alistair Darling has found a cunning way around the problem: he will simply raise electricity prices and channel the resulting cash into wind farms.
The process isn't described like that, of course. Mr Darling, presenting the Budget yesterday in parliament, put it like this:
We must build on Britain’s status as the world leader in offshore wind power generation.
The credit squeeze is holding back major offshore wind projects.
I want to lift the barriers – through £525m of new financial support over the next two years for off-shore wind, funded through the renewables obligation.
The potential is enormous. I am confident that this will lead to major projects getting the go-ahead quickly, providing enough electricity to meet the needs of up to 3m households.
This is described in the national dailies thus:
There are currently 300,000 households supplied by energy from offshore wind farms, but the Government has pledged to increase that to 3.1 million with £525 million investment ...
Mr Darling also found £45 million for small scale renewables like wind turbines on houses ...
It seems that even with the revenues shrinking, bills climbing and the government's credit running out, Mr D has managed to find half a billion from the public coffers for offshore wind: remarkable.
Well, it would be remarkable if it were true. But it's not. The public coffers contain nothing but a bit of paper reading "IOU £beaucoup trillions, G Brown", and in fact that half-billion will be found from the pockets of electricity users. You and me, that is.
The key is the phrase "funded through the renewables obligation". If we delve deep (page 148) into the Treasury pdfs which provide detail on Mr Darling's speech, we find what the government actually plan to do.
Budget 2009 announces a banding review with the intention of increasing the banding of Renewables Obligation Certificates (ROCs) from 1.5 to 2.0 for offshore wind projects meeting specified completion criteria if they place new orders in 2009-10, and then 1.75 in 2010-11. This is expected to provide £525 million support from 2011 to 2014, protecting 3 GW of proposed investment over the next two years, enough to power an estimated 2.8 million homes.
The Renewables Obligation scheme is the only reason there is any renewable energy in the UK at all. As renewable juice costs more to make than coal, gas or nuclear - and generally has the added disadvantage that you can't turn it on and off on demand - companies wouldn't normally be able to sell it.
Wind farms aren't machines for producing electricity - they're machines for printing Renewables Obligation Certificates
But, under the Renewables Obligation, the electricity sector in the UK must by law obtain 9.1 per cent of its juice from renewable sources in 2008/09. This is planned to rise gradually to 15.4 per cent in 2015.
Electricity providers comply with the scheme by presenting Renewable Obligation Certificates (ROCs) to the correct amount of megawatt-hours for the relevant financial year. Every time a megawatt-hour is generated by government-approved renewable means, an ROC is issued to the generating company. The renewables company then sells the ROC on to a domestic or industrial energy supplier, making much of their income from the ROCs rather than the relatively small amount of electricity they generate. An end supplier, having sold a whole lot of electricity, needs to buy an appropriate number of ROCs (or make its own using its own renewables plants) or it will be charged a "buyout" fee.
Financially speaking, renewable power plants aren't valuable for the rather paltry amount of saleable electricity they produce: you'd never have them just for that. From a money man's point of view, a wind farm or other green powerplant is primarily a machine for printing the ROCs which let you sell normal dirty electricity.
The end result is that renewable power stations can make a profit even though it costs them more to make a megawatt-hour than it does the fossil and nuclear people, and they have to sell their juice as it appears rather than when the spot price is high. The extra costs are passed on to the consumer by the supplier companies.
But the current ROC system naturally makes the power companies seek to generate their certificates as cheaply as possible. Offshore windfarms are expensive to build and run compared to onshore ones, and you need to raise a lot of capital to get them built - not easy in times like these. An offshore windmill does generate 50 per cent more useful ROCs for a given number of megawatt-hours, but so far this incentive hasn't proved sufficient to get twitchy bankers to loosen their purse strings.
But now, for one year only, any offshore wind projects initiated can look forward to a future of double ROC production: or a 75 per cent increase if the deal can't be assembled until next year. That might, as the Treasury mandarins estimate it will, cause nervous bankers to cough up £525m in backing. Or it might not. But if the bankers come across, they'll expect to make their cash back and then some from the sale of ROCs. These will be paid for by 'leccy suppliers, and they in turn will collect from their customers.
It could well be, as the Treasury say, that us all chipping in half a billion quid (plus multiple profit margins) on our electric bills will see another 3 gigawatts of offshore windfarms installed in the next few years, in projects like the one-gigawatt London Array - said to be facing funding problems at the moment, as it happens.
What's not even vaguely plausible is that this will supply the energy required for 3 million British homes, as the Treasury and the Telegraph suggest. A gigawatt of offshore windfarm yields (pdf page 3) 3,100 gigawatt-hours of juice per year, so three will put out a bit more than nine terawatt-hours. This is enough energy to run 400,000 average British homes. As ever, the fact that most homes use a lot more energy in the form of gas or heating oil than 'leccy has been ignored.
Mr Darling's scriptwriters do their best to slither around this by saying "enough electricity to meet the needs of" 3m homes, but this isn't true. Homes need heating and hot water, and often gas for cooking too. Three gigs capacity of offshore wind equals well under half a million homes' worth of energy, not three million. That's a measly 0.3 of one per cent of the UK's total requirements.
So no, Mr Darling, the potential here is not "enormous". It is insignificant, in fact, and it really doesn't seem to justify a half-billion-plus stealth levy on our electricity bills. ®