August 23, 2022 - 2:30pm
When Liz Truss becomes Prime Minister next month, her ally Kwasi Kwarteng is tipped to become Chancellor. For the time being, though, he’s the Secretary of State for Business and Energy — which is more than enough to keep him busy. Unless he can contain the financial costs of the energy crisis then neither he, nor any other future Chancellor, has much chance of fulfilling Truss’s tax-cutting promises.
According to the Telegraph, Kwarteng’s latest move is to target the excess profits made by Britain’s wind farms (and other UK sources of renewable generation). This requires a bit of explanation because, on the face of it, the problem is not being caused by renewables.
The current energy crisis is first and foremost a natural gas crisis — because the price of this internationally-traded commodity has gone through the roof. This has had a knock-on effect on the cost of generating electricity from gas-fired power stations, which in turn determines the market price of electricity in the UK. It’s here that some renewable operators are making a killing. They can sell their electricity at the full market price, but because their generating plant runs on wind, water or sunlight, they don’t have to bear the crippling cost of gas. The lucky owners get to trouser the proceeds.
The good news is that this issue was anticipated years ago. Since the middle of the last decade new renewable and nuclear capacity in the UK has been commissioned under the Contracts for Difference (CfD) scheme. This refunds the difference between an agreed “strike price” and the market price. Crucially it works both ways, meaning that when the market price is high, producers refund consumers (ultimately, you and me).
The bad news is that the UK’s older renewable capacity pre-dates the CfD scheme. Consumers aren’t being refunded, and producers are pocketing excess profits plus a chunk of subsidy too. It’s this legacy system — which is set to run until 2037 — that Kwasi Kwarteng wants to renegotiate. If the energy companies won’t play ball, he should get tough — and remind them that in his next job he’ll be in charge of taxation. A windfall tax on windfall profits from wind power would be entirely appropriate.
He shouldn’t stop with renewables. Whether the energy source in question is clean or dirty, no one should be exploiting a national emergency. That said, a government can’t do much about the cost of imported energy. For instance, a recent article in the Financial Times argues that the European Union should ask Norway for a price cut on its plentiful gas exports. However, unless the EU plans on invading its northern neighbour (the Germans have experience) Oslo can tell Brussels to get wrecked.
The truth is that if we want to guarantee energy at a non-ruinous price level then we have to produce it domestically. On any useful timescale, this means renewable energy. By all means let’s have another go at shale gas, but we can put up wind turbines and solar panels much faster.
So Liz Truss needs to get over her silly solar-phobia and also lift the ban on new onshore wind. Or is she not the de-regulator she says she is?
Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.
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SubscribeStrange that the Green lobby hasn’t mentioned this.
The penultimate paragraph is wrong though and illustrates how the establishment has drunk the cool aid. More renewables is not the answer, because every MW of renewable generating capacity has to be duplicated by a MW of predictable fossil/nuclear fuelled capacity. That cannot possibly be cheap.
The next round of contracts with renewables operators should require them to provide electricity 24/7 so that they, not the government, has the problem of what to do when it’s not windy.
Fracking, not renewables, is the immediate answer for the UK. It is only an extremely well-organised political agenda that has been blocking this, and you have to wonder how much longer we’re going to permit this international embarrassment to get away with it.
According to National Grid live today, wind power is producing 9.6% of electricity, gas 46%. There is no guarantee that more wind will mean less gas, as dispatchable gas generation is needed to fill in the gaps left by intermittent wind.
Thank you for the timely article. I was thinking about why electricity coming from renewables is not cheap/er just this morning and couldn’t come up with an answer.
In short, they are indeed getting megarich. I am sure the Greens are over the moon with this.
Well , the whole point of net zero and related legislation is to make wind and solar competitive by making gas more expensive.
Hydro and biomass are routinely included in total renewables to boost the numbers, but show me a greenie who will openly praise the idea of building more dams and burning more wood chips.
They were getting rich even at lower energy prices anyway. It was always a scandal, it’s just got even worse.
We can thank Tony Blair for these legacy contracts with renewable electricity suppliers for the egregious profits they are making. These contracts tied the price to the market price for energy generally – how short sighted can you get? Proponents of windfarms and solar bang on about how cheap they are, as well as clean, well clearly that is not the case with these older contracts. I would totally support a windfall tax on these producers – why should it only be the gas and oil suppliers who have to pay?
Windfarms are a culturally-sanctioned (O, the Dread Climate Change!) form of racketeering. Their toll on raptors is obscene. And of course, as we’ve been told, “The wind bloweth where it listeth.” Why not install some power generating wind machines in the halls of Parliament? It would be an abundant and far more dependable supply.
The important thing about signimg a long term contract with the government is to be sure that if it goes windfall well then it can be torn up but that if it goes windfall bad you are left to sink
Does anyone have any inside knowledge of the likely effectiveness of the Highview Power energy storage solution. If it works I guess this would vastly improve the attractiveness of renewable energy. As people rightly say without energy storage they are not a solution.
How would a windfall tax on wind power help increase the amount of wind power generated?
This is presumably a rhetorical question! It means the windfall profits from the subsidised inefficient monsters disfiguring so much of Britain’s landscapes, will at least slightly UK citizens tax burdens.
Personally, I would remove every last one of them so that our grandchildren will not curse us for destroying our rural beauty.
It’s not a rhetorical question. Franklin wants more wind power and calls on Truss to lift the ban on new onshore wind.
I read of this in a book book, ‘Harrison Bergeron, Kurt Vonnegut, but now not just applied to people…..
“In the year 2081, the 211th, 212th, and 213th amendments to the Constitution dictate that all Americans are fully equal and not allowed to be smarter, better-looking, or more physically able than anyone else. The Handicapper General’s agents enforce the equality laws, forcing citizens to wear “handicaps”: masks for those who are too beautiful, loud radios that disrupt thoughts inside the ears of intelligent people, and heavy weights for the strong or athletic.”
Good point, writer, they need handicapping, tax them.
Well they certainly do set the ‘Handicapper General’ loose on the Carbon based energy industry with a vengeance, as today’s predicament illustrates.
Why does Doogie think all renewables have to be matched by predictable generation?
Has he not heard of Storage? Apart from Battery storage, there are thing like Pumped water, and Barrages.
Does anyone know if the sort of people who object to Wind Turbines objected to Windmills?
I say build land based Wind Turbines and charge objectors the full price of gas! (Not to mention the prolems of Global warming)
Does anybody know if the sort of people who object to Wind Turbines objected to windmills, he says.
1) There are many thousands more land based wind turbines than there ever were windmills.
2) Wind turbines are much larger and uglier than windmills.
3) Wind turbines are hugely inefficient because the requirement for power is pretty constant, whilst flour grinding and such like is not; it can be done efficiently when the wind is blowing at the right velocity.
I say build small nuclear plants and stick a wind turbine in front of the windows of every person who objects to nuclear energy.
You write of “Battery storage … Pumped water, and Barrages” with the same blithe disregard for the inevitable problematic details that ‘green energy’ backers employed when writing paeans for it (glossing over the little problems like the fact that the wind doesn’t always blow).