Under contracts with the Government, new wind farms agree to a set price for the electricity they produce. When electricity wholesale prices are lower than the agreed price, the Government pays the difference in the form of a subsidy. But when wholesale prices are high, the wind farms pay back. The money is returned to the renewables scheme and is intended to be fed back to billpayers. However, new wind farms have delayed the start of their government contracts to allow them to keep the profits from record-high wholesale electricity prices.
Scotland’s largest wind farm is using a net-zero loophole to exploit the cost of living crisis, government sources have suggested.
Ministers are planning to tighten rules over contracts with wind farms as they ordered talks with Moray East, after it emerged owners were making profits from record energy prices instead of paying back to the taxpayer.
Kwasi Kwarteng, the Business Secretary, is looking into ways to stop the loophole being exploited in future contracts, amidst concerns that wind farms are profiting whilst households struggle to pay bills.
Developers could lose out on subsidies for planned new wind farms, or be forced to pay a forfeit in future contracts if they profit from high gas prices.
The Government provides wind farm producers a guaranteed price for their electricity in order to stimulate the development of renewable energy.
However, some developers are choosing to sell freely on the wholesale market during record energy prices to avoid returning potentially tens of millions in profits to the taxpayer.
Mr Kwarteng believes developers acting this way are “undermining the renewables scheme and not behaving within its spirit”, a source said.
The move by wind farm operators is within the rules set by the Government when the contracts were drawn up in 2017 because Whitehall officials did not predict a gas price spike.
Ministers now want to close the loophole, given the likelihood of future volatility within energy markets.
Sam Hall, the director of the Conservative Environment Network, said that the Department for Business, Energy and Industrial Strategy should close the loophole, adding: “In return for government backing, developers should be making sure consumers also benefit from the renewable energy dividend.
“The developer is only able to exploit this loophole because of how cheap wind power is compared to gas, which sets the wholesale electricity price.”
Under contracts with the Government, new wind farms agree to a set price for the electricity they produce.
When electricity wholesale prices are lower than the agreed price, the Government pays the difference in the form of a subsidy. But when wholesale prices are high, the wind farms pay back.
The money is returned to the renewables scheme and is intended to be fed back to billpayers. However, new wind farms have delayed the start of their government contracts to allow them to keep the profits from record-high wholesale electricity prices.
Moray East, which became Scotland’s biggest wind farm when it became fully operational last month, agreed a price of £57.50 per megawatt hour (MWh) with the Government for its electricity.
However, it has delayed the start of its government contract for 12 months, meaning it will instead receive the wholesale price, which hit £95.10 MWh last week, and avoid having to pay the difference back.
The Triton Knoll wind farm, off the coast of Lincolnshire, has also delayed the contract for its third phase, which is fully operational.
The Government cannot change existing contracts, but will now review the design of new contracts to avoid the loophole being exploited again.
A government spokesman said: “The Contracts for Difference scheme incentivises private investment in clean, home-grown energy and has driven down the price of offshore wind by 65 per cent. Projects will not receive payments while they are generating on market terms, and ministers keep the scheme under review to ensure value for money for consumers.”
A spokesman for Moray East said: “Moray East is on course to sign its CfD [contract for differences] within the contractual terms set by the process.”
A spokesman for RWE, J-Power and Kansai Electric Power, the owners of Triton Knoll, told The Times that they were working within the terms of the contract which allowed them “to vary the start date, enabling a project to allow for delays and losses incurred during the construction process”.
[rest of article available at source]
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