New wind farms will be prevented from keeping excessive profits, after a UK Government overhaul of subsidy rules designed to hold down bills.
Ministers are now closing a loophole that allowed turbine operators to take advantage of surging electricity prices by delaying the start of their green energy contracts with Westminster.
It comes despite an outcry from developers over rising costs, which they say are threatening the new projects needed to hit net zero by 2050.
Michael Chesser, economics and markets manager at trade group RenewableUK, said: “At a time when developers are already having to deal with massive global increases in costs, this step will put further pressure on the viability of renewable energy projects.”
The Telegraph says most offshore wind developers in Britain build new projects with the help of government contracts that guarantee they make a set revenue, to justify the expense of building and running the turbines.
Under this scheme, the developers agree a fixed price with the government for each unit of electricity generated over the first 15 years of the wind farm’s life.
Wholesale price
If the market wholesale price turns out to be lower than this guaranteed price, the government pays the developers the difference, through a levy on consumer bills.
If the wholesale price turns out to be higher than the guaranteed price, the developer has to pay back the difference.
However, this system was designed years before the surge in electricity prices.
Wholesale prices are now so high that developers can make a huge short-term profit even without taxpayer support.
As a result, some developers have been using a clause in the contracts that allows them to postpone when the pricing arrangement kicks in, for example if construction has been delayed.
The government is now changing the rules, so that developers will not be able to delay the start of their contract for “commercial gain”.
Backdrop
In papers published on Wednesday, the government said: “We recognise and acknowledge that these changes are made against a backdrop of challenging economic conditions.
“Our changes are only intended to ensure that generators who have begun commercial operations begin their contract in a timely manner.”
Orsted, which is developing the giant Hornsea 3 wind farm off the Norfolk coast, said this week’s Budget was disappointing in its lack of support for the industry.
The guaranteed price agreed with offshore wind developers has fallen considerably in recent years - from almost £120 per MWh in 2015 to £37.50 per MWh in the latest round last year.
However, experts believe the Government will need to allow room for rising costs in an upcoming auction for fresh government contracts, potentially pushing up those prices.
Jamie Maule, research analyst at Cornwall Insight, told the Telegraph: “If the high cost of capital cannot be compensated for by an increase in the return, the money will simply not be enough for projects to be successful and could act to stifle competition and deter investors and developers from bidding for renewable projects.”
Next auction
Mr Chesser, at RenewableUK, said if rising costs were not factored into the next auction, “there's a serious risk that we will be unable to maximise the clean-energy capacity we can secure”.
Wind turbines on land and in the sea supplied almost 27% of Britain’s electricity last year, compared to 39% that came from gas and 16% from nuclear.
The Government wants to rapidly increase the number of offshore wind turbines by the end of the decade as part of the push to cut carbon emissions.