Dubious conjuring tricks

Dave Toke wonders if the Government is putting up the cost of offshore wind to pay for Sizewell C

The cost of offshore wind is being jacked up by Government-mandated ‘auction fees’ just as the Government negotiates with EDF about giving it massive handouts to fund the Sizewell C nuclear power station.

The Government has announced the award of leases to build 8GW of offshore windfarms, but in doing so the Crown Estates (mainly the Government) will earn around £900 million a year from the fees that developers will pay the Government for the leases. This sum is broadly comparable with the annual sums it is likely to pay EDF for developing Sizewell C.

The Government’s latest leasing round for offshore wind sites has been panned by the trade association RenewableUK, saying: “too few sites were made available to meet… demand. Any auction run on that basis will inevitably lead to higher fees and this could ultimately mean higher costs for developers and consumers”.

In fact, three-quarters of the fees that developers will pay will go into Treasury funds (one quarter to the Crown); these funds will not offset the increase in prices for wind electricity that developers will charge when, in a few years’ time, they bid for contracts to supply electricity from the sites that have been leased. Indeed, the costs of the auction fees will put up the capital costs of the offshore windfarms by at least 13% (using RenewableUK figures).

Meanwhile the Government seems likely to agree a deal with EDF to fund Sizewell C whereby consumers will pay twice through their electricity bills – once to fund the construction costs of the project, and then, after it is built, by paying premium prices for the electricity generated. The connection to the auction fees for offshore wind is twofold. First, it will increase the price of the offshore windfarm supply contracts relative to the (heavily subsidised) contract for Sizewell C. Second, BEIS may, in accountancy terms, be able to offset the receipts from offshore windfarm leases against the increased public sector borrowing requirement caused by the subsidies given to EDF for the construction of Sizewell C. BEIS has been lobbying the Treasury to allow it to make consumers pay for the construction of the proposed nuclear plant well before any generation from the plant begins. However, the Treasury says that this will increase Government debt levels.

Using a series of very dubious conjuring tricks, the Government will claim that new nuclear power is much less expensive compared to offshore wind than would otherwise be the case. This is despite the massive subsidies given to Sizewell C and the fact that offshore wind is, in accountancy terms, effectively paying for much of the nuclear subsidies!

An especially pernicious aspect of the Government’s policy is the meagre nature of the leasing round. Eight gigawatts of offshore wind will generate around 12% of current UK electricity (a lot more than Sizewell C of course), but this is a lot less than the value of the last leasing round for offshore wind. The last offshore leasing round was concluded in early 2010 (during the lifetime of the last Labour Government) and constituted some 32GW of capacity.

The Government is, in effect, slowing the decarbonisation process so that it can make money out of offshore wind power, and on top of that it will have the mendacity to claim that the gap with nuclear costs is falling.

As well as all this, Sizewell C is most likely to be given a much superior generation contract compared to offshore wind. Despite the fact that nuclear electricity is much more expensive than offshore wind, it will be allowed to carry on generating and push the windfarms off the grid.

So the Government’s focus on funding Sizewell C at practically all costs is not only diverting investment funds away from much cheaper renewable energy, but it is also following what looks (to me) like a deliberate policy of limiting the issue of leases to offshore wind developers in order to generate funds that can be recycled to support nuclear power.

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