Renewable Energy Foundation

Over the last few days the press has been reporting general accounts of a leaked letter from the Chancellor, George Osborne, to Ed Davey, Secretary of State at the Department of Energy and Climate Change, suggesting that the Treasury has attempted to sabotage the green revolution by seeking dramatic reductions in subsidies.

The text of the letter has now been made available in full on the Guardian website: "George Osborne Letter from to Ed Davey on Gas and Windpower".

The contents are, however, not quite what previous reports suggested. Far from being inflexible and obstructive, the Chancellor appears to be moderate and conciliatory, though his letter is indeed explicitly committed to a governing principle:

"We need to set out an approach which puts the cost to consumers at its heart."

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Energy UK (the new trade body for the electricity industry, amalgamating the Association of Electricity Producers, the Energy Retail Association, and the UK Business Council for Sustainable Energy) has just released a very brief preview of a forthcoming Ernst & Young study of investment patterns in the UK energy sector: Powering the UK

Naturally, Energy UK feel obliged to offer an upbeat interpretation, but even a superficial reading shows that the news is in fact mixed.

Ernst & Young estimate that over the next fifteen years the UK needs to invest around £250 billion on capital plant (power stations, grid lines, compressors, gas pipelines, etc.) for the electricity and gas sectors. That's £16 billion a year. However, Ernst & Young's chart shows that in 2011 the industry invested only around £11 billion a year, with about £8 billion of that being spent on power stations and about £3 billion on grid and pipelines for the transmission and distribution.

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The Guardian last week reported that the industry lobbyist RenewablesUK (REUK) is threatening to use the courts to prevent any substantial cut in subsidies to wind power.

Setting aside technical doubts as to whether this could succeed, it is remarkable that the industry should even consider such a defensive action, and still more striking that they are willing to use that possibility as a weapon in public debate.

Consider the facts of the matter. Subsidies to renewable electricity generators are drawn from consumers bills (not from taxpayers), so the impact is regressive, in other words it bears disproportionately on low income households, some of whom won't be paying tax at all.

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Summary: In order to meet ambitious and arbitrary renewable energy targets government has to over-subsidise high wind sites by a factor of four in order ensure that low wind sites are profitable. This isn't sustainable.

Roger Harrabin's story for the BBC news website yesterday quoted an energy consultant, Nigel Cornwall, as saying that "developers received the same subsidy for a very windy site as for a less windy site." What Mr Cornwall meant is that they receive the same subsidy per unit generated (roughly a 100% top-up over and above the wholesale market price, about £50/MWh).

Mr Cornwall is then quoted as saying: "That means the single band of support is very generous for some developers but not enough for others."

That is a very interesting remark, and touches on an important truth. However, there's a bit more to be said on this subject.

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On the 12th of June the House of Commons Energy & Climate Change Committee launched an inquiry into the economics of wind power.

We worked with Colin Gibson, one of our advisors, and a leading expert on system costs, to draft our evidence, which we are publishing today (REF Comments on the Economics of Wind Power) 

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Following work on the high constraint payments made to Scottish wind power in April, and subsequent coverage in the press,¹ REF has continued to monitor the situation in May and June. The Department of Energy & Climate Change had described the events in early April as “unusual”,² and we were interested to determine whether this was in fact the case.
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Constraint Update