By Paul Homewood
Following yesterday’s post on the true costs of offshore wind, there have been comments asking how wind farms have been able to agree contracts for as low as £37/MWh, when the real cost appears to be in the region of £100/MWh or more.
For instance:
The first thing to note is that none of the wind farms who have agreed strike prices of £37/MWh have actually been built yet. Typically they wont be commissioned until 2027.
Below is the list of all the offshore wind farms currently producing and who are operating under CfDs. Most are well over £100/MWh, and the lowest is Triton at £94.81/MWh:
There are currently two wind farms which are producing, but have not taken up their option of a CfD:
Hornsea was commissioned in Dec 21, and Moray in June this year.
Instead of being paid £73.71/MWh under CfD, they are being paid market prices, currently around £300/MWh. The pair will generate about 5 TWh per year, so at today’s prices they are making about £1.1 billion a year more profit than if they had taken up their CfD options.
We can expect other wind farms coming on stream in the next few years to follow suit.
I don’t know all the legal niceties, but essentially CfDs are not legally enforceable contracts, as far as the wind farms are concerned, but options. It seems that the government has very little power to force them to be taken up.
It is obviously a gamble for the wind farm companies to build them in the hope of higher market prices. But, in a way, most businesses take a gamble on markets when they make investment decisions.
Given government climate policy, and in particular the declared intention to ratchet up carbon pricing in order to force out fossil fuels, it was always clear that market prices for electricity were not going to stay as low as they have been in the past. So to that extent the gamble was not a high risk one.
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December 16, 2022 at 12:08PM
Iowa Climate Science Education 