Wind farms owners are under investigation by the energy watchdog over alleged market manipulating after being accused of charging consumers more than £100m.
Ofgem will investigate claims that renewable energy companies artificially inflate compensation payments they receive for turning off their turbines during windy days, when extra capacity was not needed on the grid.
The Renewable Energy Foundation (REF) has handed the EPA a dossier that suggests wind farm companies may be increasing the price of “virtual electricity” they have never generated.
Ofgem confirmed the complaints and began an investigation to determine if any rules had been broken.
John Constable, the director of REF, an organization that has repeatedly highlighted excessive payment to wind farms said: “Our data suggests that many wind farm operators are charging consumers over-the-top to reduce their output during windy days. This results in no energy being generated but costs consumers a fortune.
We estimate that it will add £100m to the total consumer bill in 2023.
REF alleges that operators have overcharged for constraint payment. These are the payments made to electricity generators when they need to turn off wind farms or other assets to avoid overloading the national grid.
The Scottish turbines’ output swells on windy days because there are not enough national grid connections to transport their power to England.
The National Grid Electricity System Operator tells wind farms that they have to “constraint” their output. This means that they have to turn off and earn less money through the subsidy system for renewable energy.
The cost is added to the consumer bill. The complexity of the system allows for multiple ways to overclaim.
Ofgem has already opened an investigation into a separate allegation that wind farms have overcharged. It is estimated that bill payers have lost £51m in the past year.
The regulator has ordered Dorenell wind farm in northern Scotland to refund £5.5m.
Ofgem stated that the firm “charged excessive price to reduce output when this was required to maintain the system’s balance and the breach increased costs for consumers.”
Dorenell acknowledged the findings of the investigation and cooperated with it.
REF’s analysis revealed that such problems were not limited to a single operator or wind farm. The main cause, according to REF, was the fact that wind farm owners could set their own prices for the power they forewent.
Lee Moroney is an analyst at REF. He said, “This virtual electricity never existed except on paper.”
“Ofgem allows these wind farm operators the freedom to set their prices for notional power without verifying that they reflect their real costs and lost revenue.”
Ofgem has taken action against recent instances of overcharging. It recovered £77m last year in fines, refunds to customers, and compensations from power suppliers. This is up from £27.3m from 2022.
These penalties are often for exceeding the amount of constraint payments. In January 2023 the electricity generator Drax Pumped Storage Limited was forced to pay £6m for overclaiming power that it had been told not to produce.
In June of last year, Ofgem ordered SSE Generation Limited to pay £9.8m to NGESO for requesting excessive payments in relation to the Foyers Pumped Storage Power Station in Northern Scotland.
A generator called EP SHB Ltd. was ordered to pay back £23.6m in October last year after overclaiming constraint payments at its South Humber Bank Gas-fired Power Station.
Ofgem’s spokesman disagreed with Renewable Energy Foundation that wind farms can set their own price to reduce generation. However, he confirmed that an investigation is underway.
He said: “We have already put in place a set of robust rules that explicitly prohibit generators from abusing energy markets in such circumstances.” In the last year, we have forced several generators into making multi-million pound payments where these rules were violated.
The spokesperson added that REF’s allegations are now being investigated.
He said: “Ofgem is working with [NGESO] on alleged improper behavior of wind farms and generators. We will consider all facts, and if we find evidence of a violation of market rules, we won’t hesitate to take action.
We are also consulting to see if any changes in the licensing rules are needed.
We have forwarded the figures provided by REF on to our Generation Licence Casework Team, who will investigate any reports of possible market manipulation. Each report will be assessed on a per-case basis.
Renewable UK, a trade body representing the wind industry, stated: “As an independent regulator, Ofgem has the best position to comment on this.”