Excellent analysis. Depressing and predictable. When will UK voters have any choice? If this is the Tories, imagine how much worse the labour or liberals would be? Net Zero Economy coming to a country near you soon!
One things for sure is 50GW offshore wind target is way off being achieved even with this sweetener. However the biggest impediment to that target is the transmission system so short of invoking some national emergency to overrule all planning hoops 50GW is totally unachievable. Thus none of them can now say renewables will be cheaper. The Greens are wedded to this whatever the costs as are the Liberals. However, i reckon Labour will reset the goalposts in my view to something that is realistic and blame it all on the Tories as they can't afford for energy costs to go up any further as it will crimp Reeves mantra that we need to grow the economy to fix public services.
David thank you for exposing this but it will of course never be referred to in mainstream media and getting any MP to question it is more likely to happen in the Duma than the Commons.
Specifically what is flawed about this expensive scheme is that it further exacerbates the extra costs for constraining the windmills off the grid almost daily due to transmission constraints. Thus to prequalify should require the applicant to have agreement from the ESO they can transmit the power to where its needed if not your not eligible. They wont of course as that will wipe out all windmills applications North of the B6 boundary as being ineligible plus half of what's planned off East Anglia until the transmission companies spend 10's Billions on upgrade which the environmentalists dont want anyhow!! Mind you at least with gas prices now closer to historic norms its not costing as much to replace the generation. Also there is a huge amount of LNG coming to the market in a couple of years which will further keep the lid on prices as long current geopolitics doesn't worsen.
The allocation to previous AR projects i believe is only allowed if those projects have already completed a permitted reduction contract amendment. EMR delivery administers the CfD allocation process but can't see anything around changes to contracts so that might be through another body so we will have to wait until they publish who has prequalified later in the month to see if any previous schemes are using this ruse.
The trillion dollar question is - why are we spending billions (trillions worldwide) to get more expensive and less reliable power from facilities with a catastrophic environmental footprint?
The global establishment is terrified that the $trillions and €trillions of fiat money debt they have run up is going to lead to the mother of all financial crashes. They want to get the general public fitted into digital straitjackets and completely under their control by whatever means they can before that event kicks off.
My analysis of low density power i.e. subsidized high land use power leads me to believe its a stealthy way to take money from workers and send it to the title-owners of windy land.
The real welfare state is about establishment welfare.
BTW the Crown estate charges rent on offshore wind.
Lots of talk about a cut in this or that tax in the budget but, funnily enough, no mention of an extra £50 on household bills on top of overpriced electricity.
It has prompted one of my Bcc addressees, Euan Mearns of Energy Matters fame to try to get into Sir Edward Mountain’s “Let’s Talk Energy” summit and give a 15 minute presentation.
It's worse than you say, because the CfD contracts pay for curtailed production. Wind power has reached the point where increased capacity means increased curtailment, so you are not only paying high prices for generated electricity, you will be paying more and more for those wind turbines to not generate electricity.
That's not correct. CFDs only pay for MWh produced. Any curtailment payment comes through the Balancing Mechanism. The terms of AR6 CFDs are that they get compensated right down to zero (where they would get the full indexed strike price), but for any hour where the day ahead reference price is negative they would get no compensation for production from the CFD at all, which makes them cheapest to curtail because there is no need to compensate them for loss of subsidies.
We already see extensive curtailment at wind farms that didn't commence their CFDs and therefore get no compensation at zero or negative prices, because curtailment pays. But when there is a lit more competition the price will erode dramatically, severely denting the economics of wind farms on no subsidy when prices are negative.
Older wind farms either get ROCs when they produce, or their CFD pays out the full strike price when prices are negative. Some get no compensation if prices are negative for six or more contiguous hours.
Location also plays a big part in the curtailment payments game. If a wind farm is in an area that is frequently subject to transmission constraints on windier days then there is a smaller pool of wind farms within the constraint and so less competition in bidding for constraint payments. It becomes easy to guess what level of compensation is needed to shut down enough wind, and so all bids cluster close to that level.
It's a lot more complicated than I thought, but the fact remains that someone has to pay for the curtailed power, whether its paid directly to the wind power company, or via balancing, or via an increase in future CfD prices resulting from lower capacity factors if the wind companies have to eat the cost.
Thanks for that. Is there a link to a good summary of how curtailment works both practically and economically? Sounds like something I need to get my head around properly
The best write-ups you will find are my comments at various places: the industry is not very transparent about it for lots of reasons. There was the paper by Intini and Waterson that investigated the behaviour of ROC subsidised wind farms, finding that they exaggerated their curtailed production estimates, and raised their curtailment offers when they could see that the Grid had no real options. Their understanding of CFD wind farms is more limited, as they did not research them (whereas I have pored through the 500+ pages of CFD terms for each iteration).
That prompted investigation by Bloomberg which they made a song and dance over, and also led to the recently announced fine on EdF's Dorenell Wind Farm
I had previously personally alerted OFGEM back in 2020 to strategic bidding behaviour in the Day Ahead Market, where wind farms subject to the 6 hour rule were letting prices run negative for 5 hours, then bidding up the sixth to just positive, and then letting them drop back if need be thereafter: thus securing full strike price compensation for windy nights with low demand. The response was to remove the 6 hour rule for the CFD terms for future rounds (AR4 onwards), which actually makes a huge dent in the economics if you are a first in line to curtail wind farm (look at the curtailment rates for Moray East and Seagreen), and was I suspect a reason why AR5 produced no bids - and is still a big disincentive for AR6. I also highlighted the disadvantageous tradeoff for UK consumers of exports at negative or low values (subsidised by UK consumers) vs curtailment, and also the interplay with storage.
There are a couple of sites with some data put together by young analysts who are trying more to support the transition to wind, and tending to ignore such issues as the need for inertia as a reason to curtail. Nevertheless, their expertise in extracting and presenting data from Elexon is excellent. I hope Robin Hawkes will find time to expand on this one:
If you follow the link to the map you can get time profiles of production and curtailment per wind farm. Serious analysis requires data download (not offered, unfortunately). I should probably try to get in touch with him.
even if it does miss some of the issues, such as what happens as we move to mega surpluses that give rise to sustained negative values, the need for inertia, etc.
It's also well worthwhile looking at the various bits of analysis of the Continental scene, with particular emphasis on the Nordics by P-F Bach who I first encountered at least a decade ago at Euan Mearns' Energy Matters.
Wow that is excellent work all credit to you for at least trying to get the schemes redesigned to avoid it being exploited although you have to wonder what all the expensive consultants have been doing in the first place.
Its not quite as straight forward as its first looks so thank you again for shinng a light on the inner workings of these contracts. Still can't get away though from the fact that the ESO have paid out vast amount of money balancing the grid over the last year with the majority of it due to the unreliables with system constraints being the primary cause. Still see that connect and manage needs to be replaced with connect only when the power can be transmitted to where its needed. CEGB never built a power station that couldn't send out its power at all times (subject to outages).
Well dissected David - Net Zero is a locked in goal of the red & blue Uniparty - I will put my faith in Reform UK at the GE - they will scrap Net Zero, amongst other great things for indigenous British energy
The "budget" is a somewhat notional affair that bears little relation to reality, not merely because it is cast in 2012 money much as if postage could still be bought for a 1d stamp (although a penny black has actually increased in real value). This article at LCCC gives some hints:
The nitty gritty of the calculation is this formula:
“Valuation Formula” means:
Budget impact.s,yr,p = (Strike Price.cy,t – Reference Price.yr) X Load Factor.t,yr X YR1F.s,c,p X
Capacity.s,p X (Days.yr X 24) X (1 – TLM.yr) X RQM.t X CHPQM.s
While it's fun to note that they bother with distinguishing leap years and imposing a 0.9% Transmission Loss Multiplier, and have a correction YR1F for a plant starting mid year and other fudge factors that turn out to be 1 except in exceptional circumstances, the real heart of the formula is
Budget impact.s,yr,p = (Strike Price.cy,t – Reference Price.yr) X Load Factor.t,yr X Capacity.s,p X 8760
The initial valuation is made at the published Administrative Strike Price - £73/MWh2012 in the case of offshore wind. The Reference Price is a supposed guess for what a particular technology will harvest in market sales prices - in 2012 money. For Offshore Wind the numbers are £44.92/MWh, £37.74/MWh, £30.22/MWh, £25.81/MWh and £24.13/MWh starting in 2026/27 through 2030/31 - and are crucial in determining the real budget impact, since if we subtract them from the £73/MWh Administrative Strike Price (maximum auction bid level) we get the margins for each year: £28.08/MWh, £35.26/MWh, £42.78/MWh, £47.19/MWh and £48.87/MWh. The realism of these prices is of course highly questionable, although if we allow for a large chunk of curtailed production at zero value it would bring down the averages somewhat.
The Load Factor for offshore wind is assumed at a constant 61% - which is way above anything likely to be achieved in the real world (especially given rising curtailment as capacity increases), but which again helps to chew up the budget faster than might otherwise be assumed. However, the assumption means that in a normal 8760 hour year, 1MW of capacity is assumed to generate 5,343.6MWh, or 5,295.5076MWh after allowing for the 0.9% loss factor (multiply by 0.991). In reality, load factors will be much less, meaning that less money will need to be spent by bill payers other things being equal.
We are now in a position to see what the £800m offshore wind budget might procure by way of capacity. Each MW of capacity will "use up" 5,295.5076 x the margin for the year, so at £73/MWh2012 the maximum potential capacity for each delivery year would be 5,380MW, 4,284MW, 3,531MW, 3,201MW and 3,091MW. Clearly project gestation times will mean that new capacity is unlikely to commissioned until at least 2027/28, and that would be a stretch. If the auction were to bid prices down to £63/MWh2012 (just under the Administrative Strike Price of £64/MWh2012 for Onshore Wind) then the maximum volumes would be 8,356MW, 5,981MW, 4,609MW, 4,062MW and 3,887MW.
Ignoring the first year, delivering 4-5GW per year would be challenging in terms of construction and installation capacity - and at this stage the only quoted years for offshore wind are the second and third year, implying a total over the 2 years of 7,816MW before competitive bidding is required. But even 11GW at this late stage is going to leave the politicians facing the reality that 50GW of wind by 2030 is unachievable - and they will be facing the reality of steadily reducing dispatchable capacity.
50GW was a throw away comment from Johnson from 40GW which didn't have plan either. Until we sort the transmission constraints there is no hope anyway and whilst im not a fan of nimbys but the longer they keep delaying things the better the chance that politicians will finally realise the folly of this goal before its too late.
Excellent analysis. Depressing and predictable. When will UK voters have any choice? If this is the Tories, imagine how much worse the labour or liberals would be? Net Zero Economy coming to a country near you soon!
One things for sure is 50GW offshore wind target is way off being achieved even with this sweetener. However the biggest impediment to that target is the transmission system so short of invoking some national emergency to overrule all planning hoops 50GW is totally unachievable. Thus none of them can now say renewables will be cheaper. The Greens are wedded to this whatever the costs as are the Liberals. However, i reckon Labour will reset the goalposts in my view to something that is realistic and blame it all on the Tories as they can't afford for energy costs to go up any further as it will crimp Reeves mantra that we need to grow the economy to fix public services.
David thank you for exposing this but it will of course never be referred to in mainstream media and getting any MP to question it is more likely to happen in the Duma than the Commons.
Specifically what is flawed about this expensive scheme is that it further exacerbates the extra costs for constraining the windmills off the grid almost daily due to transmission constraints. Thus to prequalify should require the applicant to have agreement from the ESO they can transmit the power to where its needed if not your not eligible. They wont of course as that will wipe out all windmills applications North of the B6 boundary as being ineligible plus half of what's planned off East Anglia until the transmission companies spend 10's Billions on upgrade which the environmentalists dont want anyhow!! Mind you at least with gas prices now closer to historic norms its not costing as much to replace the generation. Also there is a huge amount of LNG coming to the market in a couple of years which will further keep the lid on prices as long current geopolitics doesn't worsen.
The allocation to previous AR projects i believe is only allowed if those projects have already completed a permitted reduction contract amendment. EMR delivery administers the CfD allocation process but can't see anything around changes to contracts so that might be through another body so we will have to wait until they publish who has prequalified later in the month to see if any previous schemes are using this ruse.
The trillion dollar question is - why are we spending billions (trillions worldwide) to get more expensive and less reliable power from facilities with a catastrophic environmental footprint?
https://www.flickerpower.com/index.php/search/categories/general/the-energy-crisis-how-we-got-here-and-how-to-move-on
I think it all comes back to the motive put forward by Reiner Fuellmich in his Covid-19 crimes against humanity trial, my summary here: https://metatron.substack.com/p/reiner-fuellmichs-grand-jury-court.
The global establishment is terrified that the $trillions and €trillions of fiat money debt they have run up is going to lead to the mother of all financial crashes. They want to get the general public fitted into digital straitjackets and completely under their control by whatever means they can before that event kicks off.
I enjoy economics.
My analysis of low density power i.e. subsidized high land use power leads me to believe its a stealthy way to take money from workers and send it to the title-owners of windy land.
The real welfare state is about establishment welfare.
BTW the Crown estate charges rent on offshore wind.
See Sunday's article. I think you might like it.
Here it is:
https://davidturver.substack.com/p/offshore-wind-follow-the-money
All this subsidy does is raise the rents on windy land.
Terrible for workers,
Great for the establishment.
Lots of talk about a cut in this or that tax in the budget but, funnily enough, no mention of an extra £50 on household bills on top of overpriced electricity.
So depressing. At least my latest Net Zero broadside is getting some traction, now posted on Joel Smalley’s substack: https://metatron.substack.com/p/net-zero-climate-change-broadside.
It has prompted one of my Bcc addressees, Euan Mearns of Energy Matters fame to try to get into Sir Edward Mountain’s “Let’s Talk Energy” summit and give a 15 minute presentation.
It's worse than you say, because the CfD contracts pay for curtailed production. Wind power has reached the point where increased capacity means increased curtailment, so you are not only paying high prices for generated electricity, you will be paying more and more for those wind turbines to not generate electricity.
That's not correct. CFDs only pay for MWh produced. Any curtailment payment comes through the Balancing Mechanism. The terms of AR6 CFDs are that they get compensated right down to zero (where they would get the full indexed strike price), but for any hour where the day ahead reference price is negative they would get no compensation for production from the CFD at all, which makes them cheapest to curtail because there is no need to compensate them for loss of subsidies.
We already see extensive curtailment at wind farms that didn't commence their CFDs and therefore get no compensation at zero or negative prices, because curtailment pays. But when there is a lit more competition the price will erode dramatically, severely denting the economics of wind farms on no subsidy when prices are negative.
Older wind farms either get ROCs when they produce, or their CFD pays out the full strike price when prices are negative. Some get no compensation if prices are negative for six or more contiguous hours.
Location also plays a big part in the curtailment payments game. If a wind farm is in an area that is frequently subject to transmission constraints on windier days then there is a smaller pool of wind farms within the constraint and so less competition in bidding for constraint payments. It becomes easy to guess what level of compensation is needed to shut down enough wind, and so all bids cluster close to that level.
It's a lot more complicated than I thought, but the fact remains that someone has to pay for the curtailed power, whether its paid directly to the wind power company, or via balancing, or via an increase in future CfD prices resulting from lower capacity factors if the wind companies have to eat the cost.
Thanks for that. Is there a link to a good summary of how curtailment works both practically and economically? Sounds like something I need to get my head around properly
The best write-ups you will find are my comments at various places: the industry is not very transparent about it for lots of reasons. There was the paper by Intini and Waterson that investigated the behaviour of ROC subsidised wind farms, finding that they exaggerated their curtailed production estimates, and raised their curtailment offers when they could see that the Grid had no real options. Their understanding of CFD wind farms is more limited, as they did not research them (whereas I have pored through the 500+ pages of CFD terms for each iteration).
https://www.sciencedirect.com/science/article/pii/S0167718723000292?via%3Dihub
That prompted investigation by Bloomberg which they made a song and dance over, and also led to the recently announced fine on EdF's Dorenell Wind Farm
https://www.heraldscotland.com/news/24160571.dorenell-wind-farm-pay-5-5m-overcharging-grid/
I had previously personally alerted OFGEM back in 2020 to strategic bidding behaviour in the Day Ahead Market, where wind farms subject to the 6 hour rule were letting prices run negative for 5 hours, then bidding up the sixth to just positive, and then letting them drop back if need be thereafter: thus securing full strike price compensation for windy nights with low demand. The response was to remove the 6 hour rule for the CFD terms for future rounds (AR4 onwards), which actually makes a huge dent in the economics if you are a first in line to curtail wind farm (look at the curtailment rates for Moray East and Seagreen), and was I suspect a reason why AR5 produced no bids - and is still a big disincentive for AR6. I also highlighted the disadvantageous tradeoff for UK consumers of exports at negative or low values (subsidised by UK consumers) vs curtailment, and also the interplay with storage.
There are a couple of sites with some data put together by young analysts who are trying more to support the transition to wind, and tending to ignore such issues as the need for inertia as a reason to curtail. Nevertheless, their expertise in extracting and presenting data from Elexon is excellent. I hope Robin Hawkes will find time to expand on this one:
https://renewables-map.robinhawkes.com/curtailment
If you follow the link to the map you can get time profiles of production and curtailment per wind farm. Serious analysis requires data download (not offered, unfortunately). I should probably try to get in touch with him.
This site offers a convenient summary:
https://wind.axle.energy/
One of its protagonists has a good discussion here:
https://archy.deberker.com/the-uk-is-wasting-a-lot-of-wind-power/
even if it does miss some of the issues, such as what happens as we move to mega surpluses that give rise to sustained negative values, the need for inertia, etc.
It's also well worthwhile looking at the various bits of analysis of the Continental scene, with particular emphasis on the Nordics by P-F Bach who I first encountered at least a decade ago at Euan Mearns' Energy Matters.
http://pfbach.dk/
He has several relevant posts in recent months , even if his pdfs come with a not safe warning which I am happy to ignore.
Wow that is excellent work all credit to you for at least trying to get the schemes redesigned to avoid it being exploited although you have to wonder what all the expensive consultants have been doing in the first place.
Its not quite as straight forward as its first looks so thank you again for shinng a light on the inner workings of these contracts. Still can't get away though from the fact that the ESO have paid out vast amount of money balancing the grid over the last year with the majority of it due to the unreliables with system constraints being the primary cause. Still see that connect and manage needs to be replaced with connect only when the power can be transmitted to where its needed. CEGB never built a power station that couldn't send out its power at all times (subject to outages).
Well dissected David - Net Zero is a locked in goal of the red & blue Uniparty - I will put my faith in Reform UK at the GE - they will scrap Net Zero, amongst other great things for indigenous British energy
The "budget" is a somewhat notional affair that bears little relation to reality, not merely because it is cast in 2012 money much as if postage could still be bought for a 1d stamp (although a penny black has actually increased in real value). This article at LCCC gives some hints:
https://www.lowcarboncontracts.uk/insights/explainer-contracts-for-difference-cfd-allocation-round-6-ar6-final-parameters/
The nitty gritty of the calculation is this formula:
“Valuation Formula” means:
Budget impact.s,yr,p = (Strike Price.cy,t – Reference Price.yr) X Load Factor.t,yr X YR1F.s,c,p X
Capacity.s,p X (Days.yr X 24) X (1 – TLM.yr) X RQM.t X CHPQM.s
While it's fun to note that they bother with distinguishing leap years and imposing a 0.9% Transmission Loss Multiplier, and have a correction YR1F for a plant starting mid year and other fudge factors that turn out to be 1 except in exceptional circumstances, the real heart of the formula is
Budget impact.s,yr,p = (Strike Price.cy,t – Reference Price.yr) X Load Factor.t,yr X Capacity.s,p X 8760
The initial valuation is made at the published Administrative Strike Price - £73/MWh2012 in the case of offshore wind. The Reference Price is a supposed guess for what a particular technology will harvest in market sales prices - in 2012 money. For Offshore Wind the numbers are £44.92/MWh, £37.74/MWh, £30.22/MWh, £25.81/MWh and £24.13/MWh starting in 2026/27 through 2030/31 - and are crucial in determining the real budget impact, since if we subtract them from the £73/MWh Administrative Strike Price (maximum auction bid level) we get the margins for each year: £28.08/MWh, £35.26/MWh, £42.78/MWh, £47.19/MWh and £48.87/MWh. The realism of these prices is of course highly questionable, although if we allow for a large chunk of curtailed production at zero value it would bring down the averages somewhat.
The Load Factor for offshore wind is assumed at a constant 61% - which is way above anything likely to be achieved in the real world (especially given rising curtailment as capacity increases), but which again helps to chew up the budget faster than might otherwise be assumed. However, the assumption means that in a normal 8760 hour year, 1MW of capacity is assumed to generate 5,343.6MWh, or 5,295.5076MWh after allowing for the 0.9% loss factor (multiply by 0.991). In reality, load factors will be much less, meaning that less money will need to be spent by bill payers other things being equal.
We are now in a position to see what the £800m offshore wind budget might procure by way of capacity. Each MW of capacity will "use up" 5,295.5076 x the margin for the year, so at £73/MWh2012 the maximum potential capacity for each delivery year would be 5,380MW, 4,284MW, 3,531MW, 3,201MW and 3,091MW. Clearly project gestation times will mean that new capacity is unlikely to commissioned until at least 2027/28, and that would be a stretch. If the auction were to bid prices down to £63/MWh2012 (just under the Administrative Strike Price of £64/MWh2012 for Onshore Wind) then the maximum volumes would be 8,356MW, 5,981MW, 4,609MW, 4,062MW and 3,887MW.
Ignoring the first year, delivering 4-5GW per year would be challenging in terms of construction and installation capacity - and at this stage the only quoted years for offshore wind are the second and third year, implying a total over the 2 years of 7,816MW before competitive bidding is required. But even 11GW at this late stage is going to leave the politicians facing the reality that 50GW of wind by 2030 is unachievable - and they will be facing the reality of steadily reducing dispatchable capacity.
When will they wake up?
50GW was a throw away comment from Johnson from 40GW which didn't have plan either. Until we sort the transmission constraints there is no hope anyway and whilst im not a fan of nimbys but the longer they keep delaying things the better the chance that politicians will finally realise the folly of this goal before its too late.
Disgusting. Not your forensic work David, but the lying rats who are setting and benefiting from energy policy.