Who's Paying For Renewable Energy

"We have introduced a Renewables Obligation for England and Wales in April 2002. This will incentivise generators to supply progressively higher levels of renewable energy over time. The cost is met through higher prices to consumers. By 2010, it is estimated that this support and Climate Change Levy exemption will be worth around £1 billion a year to the UK renewables industry." Energy White Paper 2003

Government's action has ensured that renewable power generation is now 'subsidised' by the mechanisms of the Renewables Obligation (RO), the Climate Change Levy exemption (CCLe) and the marketing of RO Certificates (ROCs). Dr J R Etherington Reader in Ecology University of Wales

The Renewables Obligation places an obligation on electricity suppliers to purchase a percentage of qualifying renewably generated electricity but it also forces a consumer-sourced 'subsidy' to be paid to the renewable generator. During the year 2004-5 the obligation stood at 4.9% of qualifying electricity, rising to 10% by 2010. The mechanism of payment results in an increase in electricity price to all consumers, without exception. Few consumers are aware of this fact and neither government nor wind power developers publicise it. The complexity of this system is deliberately obscure in an attempt to conceal the fact that the RO is effectively a hidden tax on all electricity consumers and a huge hidden 'subsidy' to providers of renewable energy - larger indeed than any subsidy in history. This obscurity and lack of democracy has been acknowledged by the House of Commons Committee of Public Accounts report on the DTI (CPA 2005) which says: "Requiring users to source supplies from uneconomic providers has the same affect as taxing users to subsidise the providers, but is not as transparent or amenable to parliamentary control... [and the DTI] has not consulted consumers, or their representative groups, about their willingness to contribute to the cost of renewable energy"

The net effect of the RO and CCLe mechanism is to pay three premiums on top of the wholesale price of wind generated electricity (and other renewable generation).

  • The Renewables Obligation Certificate 'buyout' price which is currently £32.33.
  • A trading increment from marketing Renewables Obligation Certificates currently worth about £10/MWh.
  • The Climate Change Levy exemption, worth £4.30/MWh.

The ROC buy-out price, its market increment and the CCLe thus total a premium of £46 - £47 per MWh, which is added to the wholesale value of the electricity generated from renewable sources, in the main wind generated electricity.

Electricity has increased enormously in price since the RO was introduced and in early 2006 was around £40 - £45/MWh for wholesale base-load generation (DTI 2005) but the trading system of NETA involves short term bidding by National Grid Transco and the price fluctuates wildly, controlled by supply and demand. Thus we have an approximate total, at the moment, of about £90+/MWh paid for wind power compared with c. £40-£45/MWh for conventional generation.

The net outcome of the 'subsidy' system is that wind electricity suppliers will receive about twice the price of wholesale base-load thermal generation per MWh. An 'effective subsidy' which doubles unit-value is gigantic, historically unprecedented and is probably unsustainable. Coal currently receives less than one twenty-fifth of this subsidy per MWh whilst gas and nuclear get none.

The RO and CCLe provide the huge financial incentive which has brought multinational power companies flocking to our shores and has been responsible for the distortion of our planning system which the Committee of Public Accounts virtually branded as undemocratic (CPA 2005). A single 2 MW wind turbine operating at a 30% load factor would, on the basis of the above figures, receive an annual subsidy of over £235,000. About half of this income is from the consumer-sourced subsidy, without which the machine would be close to bankruptcy. It is a thought that it is only this cleverly sourced covert 'subsidy' which allows wind turbines to be built at all. Paul Golby, the chief executive of Eon UK (formerly Powergen), said: "Without the renewable obligation certificates nobody would be building wind farms."

By 2010, the cost of the Renewables Obligation, which does not appear on electricity bills and is not explained to consumers, is expected to reach £1 billion per annum based on 2002 figures.

In addition to the huge 'for-life' subsidy on electricity income, substantial capital subsidy is available for some wind power projects. Offshore Wind Farms have received in excess of £34.7 million in 2004/5 but it is difficult to establish the true scale of the subsidy as European Commission programmes often donate unspecified amounts of financial support. Also the European Regional Development Fund will award grants to projects to cover from 35% - 50% of total cost. The DTI has a Low Carbon Buildings Programme which makes capital available to small scale renewable projects. Domestic grants range from £400 - £5,000 and non-profit community schemes could receive £50,000. Additionally the National Lottery has provided grants to wind energy developers.

So much money is being channelled covertly into onshore windpower development that development companies can offer irresistible sums in rental to landowners or as 'sweeteners' to local communities. Struggling farmers on poor hill land are offered rental sums far exceeding any possible agricultural income from the land. A current proposal by Dutch firm, Nuon, typifies the use of larger scale community 'sweetening' even before a planning submission is made. The publicity material for the 26 MW Nant Bach (Mwdal Eithin) wind 'farm' in Conwy, N. Wales, states that the project "will make available £60,000 a year as a community funding". A most tempting offer even though the sum is but 2% of the likely subsidy payment to Nuon!

Like it or not, we as consumers are already paying for wind generated electricity.

The Ringmaster