Britain, a goner with the wind

The dash for wind energy is a generational folly that will see the nation’s economic future sacrificed on the altar of Net Zero


This article is taken from the November 2023 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

Britain has bet everything on wind, mostly offshore wind, to decarbonise the national electricity grid by 2035 and reach Net Zero by 2050. The commitment is to increase the current 14 GW of offshore wind production to 50 GW by 2030, enough to power around half the UK’s predicted electricity consumption. It is Britain’s only current growing source of energy generation. 

And yet the wind industry is in crisis. New developments are on hold and the government’s offshore auction in September failed to attract a single bid. Wind farm operators are effectively on strike unless the UK taxpayer ponies up more cash. The reason is that offshore wind is too expensive to be commercially viable, even with inflation-adjusted price guarantees which protect suppliers against intermittency and supply chain problems. 

Mads Nipper, the CEO of Danish offshore wind pioneer Ørsted, told Bloomberg News recently it is now “inevitable” that consumers will have to pay more. “And if they don’t, neither we nor any of our colleagues are going to build more offshore,” he warned in an embarrassing back-track from previous industry claims that offshore wind was the cheapest form of energy.

The British government has long congratulated itself that between 1990 and 2019 carbon dioxide emissions fell by 44 per cent while GDP rose by 76 per cent. The UK, it boasted, was “decarbonising faster than any other G20 country”. However, this was achieved less by a switch to renewables than by replacing coal with natural gas as the main source of reliable baseload power. 

Gas turbine generation increased from just 5 per cent of the electricity grid in 1990 to 40 per cent in 2021. Since the costs of North Sea gas extraction were significantly lower than Britain’s coal deposits and with half the CO2 emissions, this made both economic and environmental sense. 

The shift was in line with previous energy transitions in which market forces determined the triumph of an economically superior product: during the Industrial Revolution, coal replaced wood, dried dung, and wind as the dominant fuel; in the twentieth century, oil and gas replaced coal. In this process, the natural evolution to the next stage might see nuclear, which has more “bang for buck” energy density, if not yet lower cost or ease of use, eventually replace fossil fuels. 

Instead, for the first time in history, we are seeking to replace a superior economic source of energy with an inferior product, wind power, which previous generations had discarded as being too weather-dependent, too expensive and generating too little surplus energy relative to the upfront investment costs. Since the free market would never embrace an economically inferior product, this transition requires constant government subsidy and coercion to ensure the survival of the unfittest. 

So it is no surprise that offshore wind developers are now calling the British government’s bluff for an even bigger subsidy, knowing that Whitehall has strategically limited the country’s energy options to a wind-powered future. In contrast with the 1990s “Dash for Gas”, the “Renewable Grid by 2035” and “Net Zero by 2050” now enshrined in statute require a command economy that diverts much of the nation’s financial resources into less productive economic activity — with disastrous consequences for standards of living. 

Building an additional 36 GW of offshore wind with capital costs now running at an estimated £5m per MW will cost an estimated £180 billion (although construction costs will vary considerably according to site and vintage). This is equivalent to 8 per cent of GDP. Assuming a generous load factor for new projects of 50 per cent (above the historic average of 42 per cent), this extra capacity would equate to theoretical generation capacity of 159 TWh (around half of current UK demand). 

But since the government is also planning for a doubling of electricity demand by 2050, at least 492 TWh of additional renewable power generation will be required, an eight-fold increase. To put in perspective the capital cost of this: 112 GW of deep-water offshore wind to decarbonise the grid by 2050 would cost roughly £560 billion or 25 per cent of the UK’s GDP. 

But these construction estimates just scratch the surface of the true costs of a renewable grid since they do not factor in the costs of intermittency (the stop/go nature of weather-dependent energy). These increase exponentially at higher market shares of wind power, a vast hidden liability for future generations of continuing to build intermittent energy production.

Construction is not a one-off cost, since the useful economic life of wind turbines is officially just 25 years, though some industry reports suggest that the high cost of repairs and technical obsolescence of offshore wind turbines in deep, salty waters may make them uneconomic to operate after a mere decade or so without the pre-2017 legacy of overly generous UK subsidies. 

It is hard to think of a historical comparison for so much of a nation’s wealth to be spent replacing an historically cheap and efficient product with a less reliable substitute that depreciates rapidly and will always require ongoing consumer and taxpayer support. 

There are almost no offshore wind projects in the UK currently operating in the free market — without Renewables Obligation (RO) subsidy, Contracts for Difference (CFD) guaranteed prices, or above-market Power Purchase Agreement (PPA). The wind industry and its advocates previously made ludicrous claims about its cost competitiveness relative to gas. This was based on the decline in headline CFD auction prices (from £140 per MWh in 2014 to £37 per MWh in 2022), this being the level at which wind operators estimated they could make an adequate profit on the project with a guaranteed government price. 

But the CFD process is misleading since headline prices are quoted at 2012 levels , when operators currently receive at least a third more because they automatically go up with inflation (and grid costs) for the 15 years of the contract. So the 2014 CFD is currently actually now worth £196 per MWh (+40 per cent) and the 2022 £45 per MWh (+21 per cent). 

Assessing the economic viability of wind energy by looking at the declining prices of guaranteed CFDs in new auctions over time is misleading — a trap which British politicians unwittingly fall into time and again. Most importantly, the government- guaranteed price protects the wind industry from its own intermittency, the costs of which are transferred to the consumer. System-balancing costs published by the National Grid are now in the region of £4 billion a year, up from £400 million 20 years ago, and are set to rise further in a non-linear manner as wind market-share increases. 

Let’s consider why wind farms will not operate without a government guaranteed price. If the wind is blowing in the North Sea, it is usually also blowing in the Irish Sea. So UK wind farms tend to produce power at roughly the same time as their peers. As with all commodities, the market price is set by the marginal cost of switching on supply to meet demand. So when the wind doesn’t blow, the grid must bid up supply from producers of reliable, dispatchable power (gas, nuclear, hydro, coal, biomass) to avoid blackouts. 

Conversely, when there is too much wind power that cannot be used (or stored), the grid makes low or even negative bids to discourage production. This means that as the wind generation increases, UK power prices will become even more volatile, which is not a sign of a well-functioning grid. 

Although the price of power will reflect a number of considerations, the analysis I have undertaken of half-hour system settlement prices since the beginning of 2021 and the corresponding market share of wind within these 47,000 discrete time periods — which fluctuates between 0 and 60 per cent according to the weather — suggests wind generation is already significantly above its optimal UK market share: extremely high power prices occur during low wind market share periods and low and sometimes negative power prices at high market shares during windy periods, indicating excess wind energy that cannot be used or stored is essentially wasteful economic activity. 

It is the weather rather than the number of wind turbines installed that is already the constraining factor — and we already have a glut of capacity when the wind blows. Adding more wind generation will only make UK power prices more volatile with weather-dependent surpluses or gluts. 

The National Grid has paid wind farms, mostly in Scotland, over £1.4bn since 2010 to reduce their output on windy days, a payment that is justified as compensation for lost subsidy but with the result that the wind farm makes more when not generating than when selling to customers. The cost of this is borne by the consumer and will increase with even more volatile power prices that will result from more wind power being built. 

Crucially, the price achieved by excess wind generation does not adjust to reflect this low value since it is guaranteed by the CFD. In other words, the market value of wind power will always be less than the average power price. Conversely, when the wind doesn’t blow during peak demand periods, the UK has exceptionally high prices, because there is a scarcity of reliable power, which is of higher economic value. 

Unlike Denmark, which can operate — albeit with abnormally high average power prices — at a high share of wind power because it can trade (at prices that reflect the lower value of intermittent power) any surplus with Sweden’s nuclear or Norway’s hydro or the larger German market, the size and remoteness of the UK offshore wind farms — with bigger surpluses and higher transmission costs — will prevent a similar model championed by those advocating wind overbuild as an export industry (who presumably will also have to explain why British consumers would effectively be subsidising foreign electricity consumption). Wind farms operating on a large scale without this guaranteed price would either be forced to find a solution for their intermittency or realise much lower prices.

Building even more wind capacity in the UK is like a factory owner deciding to hire additional workers on long-term contracts who guarantee to only turn up when they are not needed and, at the same, paying the factory’s existing workers — gas power plants in this analogy — who turn up to work at specified hours less; while insisting on the ability to fire these reliable workers without notice. The outcome would encourage all workers to become unreliable and the factory owner would end up having to employ far more workers overall than needed to compensate for unreliability, with no guarantee of being consistently adequately resourced.

This unsolved intermittency problem is why more than $3.8 trillion has been invested in renewables globally over the last decade but the market share of fossil fuels has only decreased from 82 per cent to 81 per cent. The “Renewable Grid” is a political indulgence that can never provide the reliable, dispatchable power the grid requires. 

The failure to attract a single bid in September’s fifth CFD auction at a headline price of £44/MWh (which is actually £59/MWh) means the prospect of building 50 GW of offshore wind by 2030 now looks dead in the water. Consider that the “winners” of the fourth CFD auction in 2022, at a superficially low £37 MW (now £45 MW), suffered buyer’s remorse and refused to build their projects — notably Vattenfall’s 1.4 GW Norfolk Boreas project and Ørsted’s 2.9 GW Hornsea 3, the two largest projects awarded to offshore wind. 

It can also be feared that the offshore wind farms currently under construction awarded in the 2017 and 2019 auction would, at the CFD prices awarded, fail to generate an adequate return over their stated economic life for their investors, meaning that the miraculous post-2015 drop in UK CFD prices will prove unsustainable, with break-even instead likely more than double current estimates of gas turbine generator all-in cost (ex-carbon tax) of £50 GW/h.

While it is doubtful whether the offshore wind projects built since 2015 on sub-£100/MWh CFDs were ever financially sustainable, several factors now make them even less viable. The costs of building large-turbine wind farms, which don’t seem to offer much greater productivity than earlier models, have risen by up to 50 per cent due to inflation and higher liabilities from turbine unreliability. Furthermore, the best sites in shallow seas have already been taken. 

Perhaps more importantly, wind projects were typically funded by as much as 80 per cent debt, meaning that the 500 bps rise in global interest rates since 2021 has resulted in a £4 annual increase in debt servicing costs for every £100 of capital expenditure. That adds up to £100 for every £100 spent over the course of a 25-year project. 

As befits a parasitical industry, wind enthusiasts have reacted furiously to the failed auction

As befits a parasitical industry, wind enthusiasts have reacted furiously to the failed auction, blaming the government for its parsimony and hoping that a new Labour government might prove more malleable, rather than accepting that it became a prisoner of its own propaganda in claiming that offshore wind power was an economically feasible, scalable and, above all, sustainable solution for powering Britain’s electricity grid.

Net Zero disciples will continue to advocate that Britain plough on regardless with their unsustainable wind- dependent model in the hope that surplus energy generated on windy days can in future be efficiently exported or stored in a cost-effective, scalable manner. Whether it be lithium-ion or vanadium batteries, or the latest fad of green hydrogen, this is a hopeful delusion. 

Current battery technology is unable to offer an industrial scale solution for longer than a few hours. The building of “the world’s largest” lithium-ion industrial battery in Trafford, Manchester, recently hit the headlines. Costing £750 million, the battery would store just 2 GWh, enough to power Britain for little more than three minutes. 

At higher shares of wind power, much more electricity will need to be stored for much longer. It is easy to see how building an electricity grid powered solely by renewables could end up costing the UK more than 100 per cent of GDP.

Hydrogen is the latest unfeasible storage fad touted to justify wind overbuild. Expensive industrial electrolysers would have to operate at very low capacity utilisation given the intermittence of renewable energy, which means weather-dependent hydrogen will never be cost competitive. 

Hydrogen is a dangerous gas and difficult to store, because doing so involves either expensive high-pressure vessels or chilling to -253 degrees Celsius to liquefy and safely transport it and is subject to high energy losses on conversion. Consequently, the energy costs of hydrogen storage will outweigh any benefits.

… achieving Net Zero is truly only for those who either still believe in fairies and unicorns or want to embrace pre-industrial standards of living

Whereas the “Renewable Grid” is a political indulgence, achieving Net Zero is truly only for those who either still believe in fairies and unicorns or want to embrace pre-industrial standards of living. It is worth remembering that the electricity grid currently still only powers less than 20 per cent of total UK final energy consumption, over 70 per cent of which is still reliant on fossil fuels. Most politicians seem to think our energy consumption relates solely to the grid. 

Net zero therefore must involve attempting to electrify all economic activity: manufacturing, agriculture, transportation and home heating. Customers would have to be forced to change their behaviour, as well as rely on products that haven’t yet been invented (and probably won’t be unless the laws of physics and chemistry change). And all of this powered by a dysfunctional grid that only works when the wind blows, requiring a blank cheque of taxpayer or consumer subsidy.

Even if full electrification could be achieved, a mere doubling of electricity generation would appear to imply that per capita primary energy consumption would need to fall by at least 60 per cent to reach Net Zero, presumably with a commensurate fall in standards of living. UK electricity consumption has already declined by 20 per cent since 2005, owing to high prices and deindustrialisation. 

Our total energy consumption is down 30 per cent, now at levels last seen in the 1950s. This reverses a trend that since 1650 has seen our energy consumption rise by 20 times per capita, the real cost of energy fall by 90 per cent and our standard of living rise 30-fold. 

We were told that a fossil-fuel-free future would have few costs and a positive economic benefit. Whilst the costs of decarbonisation are now becoming clearer, what constitutes successremains elusive. 

When the decarbonisation of the West fails to produce a measurable change to global climate, the solution, like that of the medieval doctor with his bag of leeches, will inevitably be to administer more medicine — whose efficacy can never be measured — locking us into a green policy doom-loop. No one ever asked Britain’s electorate if they wanted to live in a country which wasn’t bankrupt but might be 2 degrees warmer. 

Britain’s economic future is being sacrificed on the altar of Net Zero. A renewable grid will produce abundant electricity for a few days annually and prohibitively expensive, unreliable power the rest of the time, resulting in demand destruction, supply rationing and deindustrialisation. 

Building more wind generation represents a monumental misallocation of capital and a generational policy folly. Britain is a goner with the wind.

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