# Dummies Guide To Renewable Subsidies–Part II

By Paul Homewood

By popular demand, Dummies Guide to Renewable Subsidies – Part II

Last week I looked at the mechanics of how renewable subsidies are paid, now I will look at just how much they are costing us all.

First of all we need to check out the wholesale market price of electricity in the UK, as this is integral to the calculation.

Prices are £/MWh, and the graph is interactive, if you click on the link:

https://www.energybrokers.co.uk/electricity/historic-price-data-graph

As a rule of thumb, wholesale prices in the last few years has hovered around £50/MWh, but prices began dropping last year to under £40/MWh, even before COVID. With falling oil and gas prices and low demand this year, prices are now around £20/MWh.

Government projections of fossil fuel and power prices have for many years assumed a trend rising above inflation. In turn this has given them an excuse for baking in higher renewable costs. The reality has been the opposite.

Now let’s look at the subsidy costs by sector:

Offshore Wind

Older offshore installations, up to 2015, are funded by the Renewable Obligation system. According to the Renewable Energy Foundation, there is 6.6GW of capacity under RO. On average they receive 1.9 RO certificates (ROC) for each MWh. One ROC is currently worth £50.05, so in addition to the market price of electricity which they sell offshore wind farms under RO receive a subsidy of £95.09/MWh. Based on a current market price of £20/MWh, they will receive total revenue of £115.09/MWh.

Since 2015, new offshore projects are subsidised via Contracts for Difference (CfDs). These guarantee a strike price for each unit of output, regardless of the market price. There is a range of CfD prices, depending on which year the auction was held, but they range from £139.35 to £173.96/MWh.

The table below shows a weighted average strike price of £162.10, in other words a subsidy of £142.10/MWh, based on a current market price of £20/MWh.

Onshore Wind

Apart from a tiny amount of capacity under CfD, most onshore wind is covered by RO. (Note – this does not include small scale wind farms, which receive payments via Feed in Tariffs (FITs), for which there are no detailed figures available).

On average, onshore wind farms receive 1 ROC per MWh, making a subsidy of £50.05/MWh.

Plant Biomass

Two biomass units are covered by CfDs. Drax 3 has capacity of 645MW and a strike price of £116.49. Lynemouth’s capacity is 420MW at a price of £122.23/MWh.

The weighted average is £118.75/MWh, meaning the subsidy is £98.75.

There is a further 3.6GW of biomass capacity operating mainly under RO, receiving 1.7 ROCs per unit, worth £65.06/MWh.

Solar Power

About two thirds of solar power is covered by ROCs, with the rest falling under FITs. These earn 1.4 ROCs per unit, worth £70.07/MWh.

Others

ROCs are also given to other miscellaneous renewable sources, such as hydro, anaerobic digestion and landfill gas. The cost of these was £454 million last year.

Feed in Tariffs

As noted earlier, small renewable installations are subsidised by FITs. No breakdown is available, but the OBR estimate the total annual cost of the subsidy at £1.6bn.

Summary

If we try to knock this lot together, we get:

Note, that I have included the £1000 million cost of the Renewable Heat Incentive, which is funded from general taxation.

Remember as well that these costs don’t include the cost of providing standby capacity via the Capacity Market, which amounts to another £1.1bn.

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June 16, 2020 at 11:48AM