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Who’s watching the cost of offshore wind farms?

Offshore wind turbines against a blue sky

The UK needs new power stations and renewable energy sources to meet demand. The Energy Bill has laid out plans for huge investment in infrastructure, but who is making sure that the cost isn’t passed on to us?

Another week, another story about the rising cost of energy. This week it’s the turn of the influential parliamentary Public Accounts Committee (PAC) to weigh in on the issue. This morning it issued a report on the infrastructure needed to carry power generated by offshore wind back to land.

And, as so often seems to be the case, the report brought criticism for the way contracts worth billions of pounds were awarded. The Committee has said the contracts gave generators a very generous return at the expense of consumers, who will pick up the tab.

The PAC’s report focuses on transmission licences for offshore wind generation that could cost £17bn. It is timely, appearing in the same week that Parliament will begin to scrutinise the Energy Bill, which is focused on a much bigger financial investment in our energy system.

Taking a closer look at the Energy Bill

The Energy Bill will set out the framework for how energy is procured and generated for decades to come. The government estimates that £110bn of investment in new low carbon electricity generation is needed. Not a decision to be taken lightly, I’m sure you’ll agree.

Whether the contracts are for nuclear power, onshore or offshore wind or any other method of generation for that matter, it is of the utmost importance that they are awarded in a way that delivers the best possible price for you and me.

I don’t want to see contracts negotiated behind closed doors, which mainly serve to make energy generators richer and bill payers poorer. PAC’s report is further evidence that we need to see proper accountability and scrutiny that delivers value for money.

Are you happy to pay the price?

In recent wind farm Conversations, you have shared your thoughts on paying for energy infrastructure. Commenter Gordon C is sceptical about the real costs:

‘If the customer provides the capital as seems to be proposed, where is the incentive for the companies to keep costs down to a minimum?’

Wavechange wants people to face up to our energy needs:

‘We have had a lot of comments about the cost of subsidising wind power. That’s fair enough, but it is time to make everyone aware that the cost of energy is rising for other reasons too. Anyone who believes that we can carry on relying exclusively on fossil fuels for the foreseeable future needs to wake up to reality.’

Do you think that energy infrastructure companies will be motivated to provide a good service if they have a guaranteed income for 20 years? What’s the best way to fund improvements to energy supplies?


This is a worrying extract from the PAC report:
“4. A fundamental aspect of good project planning is to evaluate all viable alternatives before selecting the method which will deliver the best value for money. In this case the Department and Authority have not put forward a convincing case for the licensing regime they have adopted. The consumers’ capacity for meeting the costs of these new offshore transmission licences through higher prices does not appear to have been considered. Instead the Department sought to justify the arrangement in calculations which concluded that the licence competitions would bring competitive benefits in line with the PFI market, an argument we question. We have not seen any evidence that the Department and the Authority rigorously assessed the relative value for money to consumers of other alternatives.”
I don’t know just how expert the PAC is in evaluating such things, because they are a political committee and do seem to relish picking fault with many who come before them. But PFIs were badly set up, and if the same attitude is adopted by the Civil Service to this then we should be concerned that our interests are not being competently protected.

KYLIC says:
15 January 2013

As I have learned the cost in money and of materials to construct a Wind Generator is equal to or greater than its expected output during its working life – What Good Are They?
All the additional cables lying on the seabed must impede the legitimate right of the fishing fleet to conduct its business. The proliferation of OnShore ‘Wind Farms’ is desecrating the appearance of Britain’s Green and Pleasant Land – particularly when one or more “Wind Generators’ are standing idle alongside others with their rotors turning.
Nodding Ducks, Swell Buoys and Tidal Generators have a far better chance of ‘CONSTANCY’ in the reliability stakes than anything dependant on the Wind! Then of course when the wind is too high it is necessary to ‘feather’ their blades so they can not disintegrate by running too fast!

“but who is making sure that the cost isn’t passed on to us?”
Come on Josh, that’s a bit naive, who always ultimately ends up paying?

Perhaps the real question is after taking all factors into consideration what is the best way forward, or combination of ways forward, for energy generation in general?
All forms of generation get some subsidy, oil, coal, gas, nuclear, renewables, and they all benefit in some form or other to varying degrees. That subsidy ultimately comes from us.
Where else can it come from?

What we should be doing is strip away all these “subsidies”, “guaranteed income packages”, “backhanders” etc. etc. and ask ourselves what is the best way forward? Also ask what is the fairest way to finance that best way forward?
Strip away “subsidy across the board and we might find some surprises when it comes to the real cost of some of these various alternatives. An awfully big “bung” is needed to get someone to build a nuclear power plant, and eventual decommissioning costs are staggering, not to mention the cost in the event of a “nuclear accident”. Are such elements factored in when comparing energy generation costs? I somehow doubt it.

To my mind questions involving a fundamental part of national infrastructure cannot be left to market forces, decisions cannot be based on shareholder profit potential.
So national control is really the best approach, re-nationalise energy generation and supply for the benefit of the nation rather than for benefit of shareholders of big business.

The big flaw in that argument of course is that we’ll need competent Government and I’ve seen little evidence of that for a very long time. The price we’ll all pay in the future is directly related to Government obsession with a market force approach and Government incapability of succeeding with a nationally run approach.

Grim and expensive future on the energy front for us all I’m sad to say.

End users end up paying, whether directly or through taxes. It is the government that has to set sensible contract terms to ensure the deal is fair to all – the user and the provider.