A new report claims that consumers could see their energy prices rise further because the government is blocking the development of offshore wind power.
The Energy and Climate Intelligence Unit said that the ministers’ budget is not enough to fund a large number of future farms.
The Treasury’s “unrealistic” power price predictions for the coming years have in effect reduced the pot of money available to, according to ECIU. The Treasury’s “unrealistic power price predictions” for the next years have reduced the money available to encourage new projects. The analysis shows that this could “stifle”, the number of wind farms, and make the UK more dependent on gas imported from abroad, resulting in higher prices for bill payers.
The government promotes renewable energy by offering contracts that guarantee consumers will pay a set price for the electricity generated at the site. Users pay subsidies when wholesale prices fall below this level; developers refund the difference to consumers when wholesale prices rise.
offshore Wind Farms have seen their prices fall dramatically over the last decade. The industry has matured, and the contracts awarded recently are substantially below the wholesale price. The ECIU claims that budgets have been lower than they could be because developers of wind farms are more likely to pay back the difference to bill payers.
The budget for the most recent auction was set based on wholesale power prices that were much lower than those forecast by some market analysts. The Treasury assumed that wholesale power prices would be £62 per megawatt-hour (MWh) by 2026-2027, and £33 after inflation adjustment, according to the think tank. Cornwall Insight is a leading market analyst and predicted a wholesale power price of £100/MWh in 2026-27.
Jess Ralston of the ECIU said: “Treasury’s caution is likely to backfire, leaving bill payers at the mercy of increased price volatility. The UK could import two and a quarter times more gas if it stifles British offshore wind farms in this next auction. This is a step backwards for UK energy security.
The last offshore wind farm auction was a failure due to Government mismanagement.
A spokesperson for the Department for Energy Security and Net Zero stated: “The budget for round six of the auction is more than PS1 billion. This makes it the largest budget ever for our Contracts for Difference scheme. It’s also four times as much money available for offshore wind projects. Contracts for Difference is designed to protect consumers and business from future uncertainties in the energy markets. Payments made last winter reduced the amount required to fund our energy support schemes by about £18 for a typical household.
The wholesale or reference price used for contract for difference does not have a significant impact on the auction’s running and the success of projects.