How wind farms turned into huge money-spinners because of the energy price crisis

The 60 turbines of the Crystal Rig II wind farm, located in the Lammermuir Hills, have been powering homes for over a decade. In 2010, electricity prices were at £40 per megawatt hour and wind power was still relatively rare in the UK.

Recent increases in its output have made it more valuable, which has been a boon for Fred Olsen Renewables (part of the Bonheur group, Norway’s Olsen shipping line family). Wind farms have been boosted by the fact that electricity prices have risen for more than 15 months, with a peak of £150 per megawatt hour, which is four to five times longer-term averages.

Wind farm owners are now being asked if they are making too much. The Government has borrowed an estimated £65bn to protect consumers in the next six months due to high wholesale gas and electricity prices.

Ministers want to reform the market and limit the amount of revenue wind farms can generate. The issue is the mismatch in the costs of wind power generation and the prices it can fetch.

The price of gas-fired electricity sets the market price for electricity. In other words, costs have risen. Wind farm owners don’t have to pay fuel costs so the potential upside to an increase in electricity prices is high. Subsidies are available to most wind farms in Britain.

The industry insists that the industry is not wallowing in cash. Many developers would have sold large amounts of their electricity at lower rates long before the current price rise to achieve the long-term stable returns they desire. The Government has fixed-rate contracts for newer wind farms, which means they pay the money back to consumers.

Barnaby Wharton is the director of Renewables UK. He says that the wind industry generally does not make as much money as the oil and gas sector.

However, an analysis of company accounts can shed light on who stands to gain in this current environment. Greencoat Capital, a £7bn infrastructure investor, is one of the biggest. Its portfolio of over 40 UK wind farms produced £328.8m cash in the half-year ended June. According to the company’s accounts, this was due to “high power prices, primarily reflecting high gasoline prices”.

The Renewables Infrastructure Group (TRIG), a Listed Fund, cites “elevated electricity prices driven by higher gasoline prices” as the reason for its strong half-year results. Around 70% of the output it receives from its 24 British wind farms is either subsidised or at fixed power prices. TRIG and other organizations point out the risks they took and years of low prices and high levels of investment in renewables.

Ventient Energy, an investment fund managed by JP Morgan sold electricity from its 30 offshore wind farms at a “considerably higher-than-planned” £104 per megawatt in 2021. This was helped by higher wholesale prices. However, profits fell in 2021 due to lower wind speeds. The Cayman Islands is the home of the parent company.

China General Nuclear, a Chinese state that bought three small wind farms from EDF in 2014, is another UK wind farm owner. The Rusholme windfarm, North Yorkshire, which sells it to EDF, has doubled its profits to £2.3m by 2021, thanks to higher power prices.

Directors stated that the rise in electricity and gas prices had benefited its revenues in May. The earnings limits of major energy companies are being highlighted by the big players. RWE, the German energy giant, has a majority stake at the Rampion wind farm, which is a 116-turbine wind farm off Sussex’s coast. It claims it has sold approximately 70pc this winter at “less than 10pc” of current market prices. A spokesperson for RWE said that the final price it will receive is “very uncertain” and would depend on how winter progresses.

It claims that its forward sales will cover its share in the new phase of Triton Knoll’s majority-owned wind farm, located off the Lincolnshire coast. After delaying the commencement of a government subsidy agreement that would have limited the earnings of the new turbines to £88 per megawatt hour, the farm’s developers were criticized.

SSE, the FTSE 100 networks and renewables owner, claims it has sold the “vast majority of” its wind output this year and next at “a fraction” of wholesale prices. Iberdrola owns Scottish Power. It sells into the futures rather than the spot markets. Operating profits for the renewables business grew from £184.5m in June to £263.4m in June. This was due to a 23pc increase in wind output, but also to “higher energy prices and subsidies”.

Both Scottish Power, and the French state’s EDF, sell electricity from large wind farms to their retail divisions. The Government is subsidizing all energy retailer companies to keep household bills at an average of £2,500 per month. EDF points out that rules prevent power companies from cross-subsidizing between generation and retail businesses. It states that it has been audited to show that power sales between these entities were enacted at a fair market price.

The threat of a windfall tax on the sector scared the industry. Officials are still trying to determine the exact amount of windfall taxes. Liz Truss has opposed new windfall taxes. It has allowed developers to come to the table. Now, talks are centered on moving more generators onto the Government’s 15-year fixed price agreements. This is the same deal that has seen newer wind farms built.

Contracts for Difference are agreements that guarantee developers a fixed price per megawatt (MWh), backed by a levy on consumer bills. Developers do not have any upside if the wholesale prices rise above the fixed price. Energy UK, a trade group, estimates that switching all nuclear and renewable generators to the agreements could save households as much as £250 annually. Critics worry that consumers may be forced to sign overly generous deals.

However, action is possible. EDF claims it talks to the government about the arrangement. RWE supports allowing existing projects in such deals. Fred Olsen Renewables states it will continue to work with the Government and industry to reduce bills.

A spokesperson for the department of business, energy, and industrial strategy stated that “high global gas prices and associated electricity prices have made it more urgent to reform the electricity market.” The Government is currently in talks with low-carbon generators about ways to bring electricity prices in line with the UK’s renewable, cheap energy sources. It also consults on a variety of market reform options to lower energy costs.

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