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Why Wind? The economics of wind and the carbon economy

If you are feeling guilty about not wanting wind turbines in your back yard, read on. There is every reason to query their installation anywhere, even off-shore.

If you are wondering why, if they are so useless, almost all governments are backing them as an energy solution, we don't have a complete answer.

We don't have an answer for why they thought there were WMD in Iraq, or why de-regulating banks would lead to massively inreased profits for all, or why they promised 'no more boom and bust', either.

The Assumption

"The current official Government figure for carbon displacement by wind power assumes that wind power can replace conventional generation at 100% efficiency. That is clearly unrealistic in view of the technical challenges of incorporating an intermittent and highly variable power source into a strictly managed supply system. Reports from Denmark and Germany suggest that the carbon costs of absorbing wind power into the grid are substantial. I assume that that is also true for the UK."

(Chris Heaton Harris, Conservative MP for Daventry House of commons 13 Oct 2010)

The full text of the debate is given in the links section. It is notable not only for the fact that Chris was brave enough to challenge the governments energy policy at all, but also in the response by the Minister from the Department of Energy and Climate Change, which completely failed to address the above point. However, to be fair, there is a lot quietly going on inside the DECC that ministers are rather coy about. See the ensuing page for more details.

There you have it. The established received wisdom is that every Watt of wind, solar or wavepower, is a Watt of electricity that produced no carbon emissions to generate it.

This is, of course, manifestly correct if you measure the actual output of the turbine, solar panel or wave power machine, but is it true once those power sources are connected to a grid that has to balance supply and demand using a mixture of power sources, all of which must be balanced against each other to ensure a reliable cut free supply of power to the nation? That question has never been officially asked by any European government, let alone answered. You can read a summary of the evidence later on, if you are interested, but for the purposes of understanding the economics of wind power, suffice to say that is its 100% based on the assumption so aptly described by Chris Heaton-Harris.

To make a further point: Whether or not you believe in anthropogenic climate change as - if not the most important driver of climate change, at least a significant part of it - or not, the fact remains that excessive reliance on high priced fossil fuels, most of which the UK now imports, is not a prospect that is encouraging for either electricity prices or security of energy supply. In short it is entirely rational to frame Government policy around whatever it takes to reduce our use of fossil fuels irrespective of the 'green' debate on climate change. The argument is about what is the most effective way to do that.

The Legislation

Suffice to say, that armed with that original assumption, the governments of Europe decreed individually - and that is important - that they would implement a mixture of measures to give so called 'renewable' energy a massive competitive advantage - and furthermore would require energy companies to have a certain proportion of their power generated by it, or risk what amounted to fines.

This policy is what ROC (Renewable Obligations Certificates) and Feed in Tarriffs are all about. And these policies force large users and generators of electricity to demonstrate (irrespective of the final actual effect on fossil fuel usage) that they do in fact generate electricity by 'renewable' means. Or face penalties of one sort or another.

The Result

So generous are these measures that it has been suggested that ROC actually stands for 'Return on Capital' ..If you go to the Wiki page on ROCs (see links section) you will notice that the effective subsidy of a unit of 'renewable' energy is around 41p a unit (for solar PV). That's a unit of electricity that you can buy off peak yourself for 4.5p! Or on peak for about 10p. So tempting is this profit margin, that it has attracted criminal elements. It was for example discovered that in Spain, a significant part of the solar panel electricity was apparently being generated after sunset! In Italy there are stories of Mafia connections to renewable energy. It doesn't take much imagination to realise that if you can buy off-peak energy at 4.5p, and sell it back as 'renewable' at 41p, there is a very tempting opportunity.

Now this is not to suggest that UK companies are in anyway involved in such activities. But they don't need to be, The return on capital for a perfectly above board installation is, on account of the tariff and ROC structure, extremely profitable when done completely legally. In these recessionary times it is probably one of the most profitable things you can do. Its income is guaranteed by the previous government's policies. And furthermore it doesn't have to come out of the government's own funds: It is reflected back in dramatic price rises for electricity to the consumer.

I spoke with Dr Mackay today on the ROC equivalent subsidy: He is an advisor to the Department of Energy. By his statement the Clare Windfarm would, in addition to selling its electricity at about 4p a unit, attract a further 4.1p a unit in indirect subsidies. That means that using a reasonable load average something between £1.2M and £1.4M, none of which would come near any local inhabitants or the community* (apart from the landowner), would be the subsidised income stream of the installation. The total gross income stream would be about twice that.

Indeed, one article says "A wind farm is just a way of printing ROCs".

Denmark, which has embraced windpower with a fervour beyond religion, has electricity prices that are the highest in the world - about 25p a unit. And yet it finally has concluded that the actual effect on fossil fuel usage is negligible. The Germans also, are beginning to come around to this point of view:

"We argue that German renewable energy policy, and in particular the adopted feed-in tariff scheme, has failed to harness the market incentives needed to ensure a viable and cost-effective introduction of renewable energies into the country’s energy portfolio. To the contrary, the government’s support mechanisms have in many respects subverted these incentives, resulting in massive expenditures that show little long-term promise for stimulating the economy, protecting the environment, or increasing energy security."

Even our own Department of Energy and Climate Change is apparently ring fencing its renewable enthusiasms with phrases like "set clear priorities reflecting cost, market and investor views, technical deliverability, reflecting impacts on people, the wider environment, building community support"

Conclusions

When people ask "but why do they want to build a wind power station here?" the short answer is money and politics. British Telecom's own figures showed that they used 2.281 GWh of electricity in the UK alone.. an electricity bill somewhere in the tens of millions mark, and with potential taxation penalties if they don't offset it with 'renewable energy'. The reason wind farms are profitable, is rooted in well-meaning policy initiatives to encourage a reduction in carbon fuel usage. (The reason why existing hydro power and all nuclear power, which are also extremely low in carbon footprint, receive no subsidies, is less clear: Even less clear is why other energy saving measures do not attract subsidies).

In short, windfarms exist because large electricity users will be penalised if they don't construct them, and they are penalised on the basis that renewable energy is the answer to lower emissions targets.

The fact that in all probability renewables will not actually reduce carbon emissions by very much at all, and that the operators of renewable energy stations are not judged on how much fuel they save, merely on what electricity they produce, whether it actually results in any fuel saved elsewhere or not, is the crux of the huge stupidity that is the renewable energy policy of Europe. And of course it is an extremely profitable business for the large companies that construct, install and operate these things, (as well as the landowners on whose land they are placed) and they can and do play the 'employment' card. Wind power is a wonderful way to essentially raise public sector employment without..er..raising public sector employment! Instead of the taxpayer, it's the ordinary consumer of electricity who pays for these jobs. And, of course, it only affects rural communities adversely, and since when did they matter? Well, hopefully, since the last election..

To be fair however, there are distinct signs of a wind of change sweeping through the Department of Energy and Climate Change - see later section or read their actual report..

In the context of our local application, none of this is relevant: The government legislation exists, and as long as it does so, the incentive is there, and arguments about the efficacy of windpower (or not) can cut no ice with the councils that decide planning applications on legal grounds. However we feel it is worth including as many people - ourselves included - are deeply concerned about the environmental issues and indeed the reduction of our dependence on fossil fuels. There is a certain amount of shame in opposing an application that seems on the face of it to be selfish nimbyism in the face of socially desirable developments. My answer to that is to examine the evidence that windpower is really not as green as it's made out to be, and use that to decide whether the dubious national interest is worth the assured destruction of the environment by massive onshore wind turbines.

* We have since been advised by BT that they are negotiating financial inducements with various parties involved in the decision making process. And that these have been mentioned before at public meetings: Their website however, gives no indications of these.

Click here for a critique of renewable energy as a carbon reduction mechanism