Two offshore and 15 onshore wind farms have won subsidy contracts in the Government’s first competitive green energy auction, significantly undercutting the prices that have been handed to other projects.
The results of the auction suggest consumers may be paying hundreds of millions of pounds a year too much on their energy bills because ministers previously allocated subsidies without competition, providing much higher returns to investors, critics said.
More generous subsidy schemes should now be reined in and excess subsidies clawed back, they added.
In total on Thursday ministers gave the go-ahead to 27 green energy projects, with estimated lifetime subsidy costs totalling £4bn.
Energy companies were forced to bid against each other in “reverse auctions” with the cheapest proposed projects in each category being awarded subsidies.
As a result ScottishPower’s East Anglia offshore wind farm, due to start generating in 2017-18, was awarded a contract guaranteeing it just under £120 per megawatt hour (MWh) of electricity, while Mainstream Renewable Power’s Fife offshore project, due to start generating in 2018-19, secured a contract at £114.39/MWh.
Until now the Government has not required companies to compete for green energy subsidies and has instead offered a blanket level of subsidy to each technology, irrespective of their actual costs.
Last April £16.6bn of subsidy contracts were awarded on that basis. Three offshore wind farms due to start generating power in 2017 were guaranteed £150/MWh, while two others due to be running by 2018 or 2019 were guaranteed £140. The lack of competition in the process was heavily criticised by the National Audit Office.
Keith Anderson, chief executive of ScottishPower Renewables, said the East Anglia project had set a new “benchmark” for costs and would be “one the best value offshore wind farms ever developed anywhere in the world”.
“It signals a major industry breakthrough in efforts to reduce the costs of offshore wind,” he said.
Ed Davey, the energy secretary, said Thursday’s projects were “a lot cheaper because we brought in competition” but denied the Government had overpaid previously, insisting it could not have introduced competition sooner.
He said the projects announced on Thursday would cost consumers £4 a year and claimed that Conservative backbenchers who opposed onshore wind farms would have been “crying into their cornflakes” over the fact a further 15 projects had just been sanctioned by the Coalition.
The onshore wind farms that secured contracts bid prices between £79 and £82.50/MWh, for 15-year contracts.
As well as offering the new guaranteed price contracts, ministers are also still operating another scheme called the Renewables Obligation (RO), which currently pays onshore wind farms about £40 on top of the market price of power – giving a higher total income of about £85 to £90/MWh for 20 years.
John Constable of the Renewable Energy Foundation, a group critical of subsidy costs, said in light of Thursday’s prices ministers should now make “immediate and retrospective” cuts to the RO to claw back excess profits.
He said that consumers currently paid about £750m a year to onshore wind farms. If the wind farms subsidies were cut to the level shown as viable by Thursday’s auction, consumers could save £200m a year, he said. “There is a strong case for retroactively recovering as much as possible of that excess and redistributing it to consumers.”
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