17/10/18 – Onshore wind: prospects and problems

Speakers: Luke Clark, Head of External Affairs, RenewableUK; Ed Reed, Head of Consultancy Team, Cornwall Insight; Mark Knox, Director of Energy Strategy, GFG Alliance

17 October 2018

All-Party Parliamentary Group on Energy Costs


Chair:  Alan Brown, MP

Speakers: Luke Clark, Head of External Affairs, RenewableUK; Ed Reed, Head of Consultancy Team, Cornwall Insight; Mark Knox, Director of Energy Strategy, GFG Alliance

Chair’s Opening Remarks:

I’d like to extend a warm welcome to you all to this, the 46th meeting of the All-Party Parliamentary Group on Energy Costs.

I am Alan Brown MP, the MP for Kilmarnock and Loudoun, and the SNP’s spokesperson for Energy, Transport and Infrastructure.

This afternoon we are looking at onshore wind – and it is a very timely meeting.

Last month, the Group was addressed by Lord Deben, the Chair of the Committee on Climate Change (CCC). He commented that Government were failing to take full advantage of onshore wind as a means of reducing carbon emissions.

Since then, the Labour Party at their Conference made favourable noises about reform of the planning system and we have had the new and dramatic focus of a cap on temperature rises of 1.5 degrees from the UN’s Intergovernmental Panel on Climate Change (IPCC) requiring ‘rapid, far-reaching and unprecedented changes in all aspects of society’, which has led to Government asking the CCC for formal advice on the topic.

SNP is favourable towards renewables and on-shore wind.  (The Chair noted that he was slightly biased.)

National Infrastructure Commission – also says should invest in renewables not nuclear (as so expensive) and the Government has to respond to this within a year.

We have with us this afternoon three excellent speakers, well placed to predict the future.

Firstly, we will hear from Mark Knox, Director of Energy Strategy at the GFG Alliance. Mark will be followed by Luke Clark, the Head of External Affairs at RenewableUK and finally we will hear from Ed Reed, the Head of the Consultancy Team at Cornwall Insight.

I have asked them all to limit their comments to 5-7 minutes so we have enough time for the usual Q&A session.

Thank you all for coming along tonight and may I hand over to you, Mark to get us going….

When it comes to the Q&A, please give your name and say who you represent.

(It was agreed amongst the speakers with the Chair’s consent, that Luke Clark, RenewableUK should speak first, followed by Ed Reed, Cornwall Insight, then Mark Knox, GFG Alliance)

Luke Clark, Head of External Affairs, RenewableUK

Luke tabled a handout of ten slides: ‘Onshore Wind: Fact & Figures’.

He emphasised the contribution of wind and its growth and the decarbonisation of the electricity sector.   But the job is not done; lots more work to do in the next 30 years as many existing stations are coming to end of life.  By 2030 over 130TWh of power generation will be lost.  Current government policies will leave a gap of almost 50TWh between generation and demand.  To meet the 5th Carbon Budget, electricity needs to be at a carbon intensity of 50-100g CO2/kWh by 2032.  Only a high deployment of renewables could help fill the looming energy gap and reach carbon targets.

Onshore wind needs to be a new low carbon source as new gas would blow the carbon targets.   Offshore wind costs have dropped dramatically, but onshore still lower cost – it is the cheapest form of new generation.  Projections of costs in the UK of £46.10/MWh by 2021 and in Germany and Spain onshore wind already below £40/MWh.  Wholesale prices are forecast to rise above £50/MWh in the 2020s.   RenewableUK modelling shows that customers would get a pay back of £1.5bn from a new auction of new onshore wind.

Luke made the point that onshore wind complements demand across the year: in winter when demand is high, onshore wind generation is also higher; in summer wind generates less when demand is also lower and solar is most productive.

The Government’s own figures show that onshore wind is popular.  BEIS Energy and Climate Change Public Attitudes tracker from April 2018 showed record high support for onshore wind, with 78% of the public supporting it and 8% opposing it.  The findings from the last six years show support for onshore wind, and other renewables is consistently very high and rising.

RenwableUK did their own research.  66% of people believed that the Government should reverse their ban on onshore wind, with 15% disagreeing.   And 23% of people chose onshore wind as their ‘favourite new infrastructure’, when compared to railway lines, housing development, dual carriageway, fracking or new nuclear power station.

In Scotland and Wales there is significant support for onshore wind and the jobs and investment in brings, and the vast majority of economic sites for wind development are in Scotland and Wales where wind speeds are higher.   Planning policy in England essentially prevents any wind development.

Onshore wind is good for the economy.   Five 1GW auctions for new onshore wind capacity would secure: £1.5bn net payback for consumers; 18,000 jobs during peak construction and 8,500 long-term skilled jobs supporting the operation of the wind farms; £12bn of gross value-added (with 60% of jobs created in Scotland, 23% in England and 17% in Wales);  UK content (the value of a project spend in the UK on development, capital, construction, operations and maintenance) of the projects build in 2021, would be 68%, increasing to almost 70% for projects built in 2027.

Conclusion is that the UK Government should back new auctions for onshore wind.  It is the cheapest form of generation; popular across all demographics; and a clear fit with UK energy demand. Re-opening contracts for difference auctions to onshore wind will plug the energy gap, keep bills down, meet climate change targets and deliver billions of pounds of investment and create jobs in local economies.

Ed Reed, Head of Research, Cornwall Insight

‘Is it time for the UK Government to improve support for onshore wind (with the backdrop of subsidies being wound down)?’

Ed Reed gave a brief overview of Cornwall Insight and its credentials including wide range of clients. He then made the following points,

  • Investor attractiveness in renewables in UK has nose-dived – evidenced by EY’s Renewable Energy Country Attractiveness Index. Fall attributable to repeated incursions against support schemes. Onshore wind was the early example of this.
  • Scenarios for future renewables capacity vary, but significant investment required; e.g. National Grid’s ‘two-degree’ Future Energy Scenario suggests 100GW+ of new renewables capacity by 2050, of which 10GW could be onshore wind (on top of the 13GW already in place).
  • Current pipeline for new build (~7GW of onshore wind in planning – and likely not all of this will come online).
  • But often not part of the debate is the fact that no onshore wind stations operational today are expected to be operational by 2050.  (National Grid’s Future Energy Scenario suggests onshore wind could be between 17GW and 50GW by 2050.)
  • Onshore wind capacity (as of today) is expected to decline by end of 2020s as Renewables Obligation support ends (2027). Almost two-thirds of existing onshore capacity could come to the end of its operational life by 2040.
  • Traditional investment model typically relies on de-risking volatility to ensure repayment of debt – this worked well under the various support programmes, but not so well against a backdrop of relying largely on wholesale revenues which are increasingly volatile and subject to cannibalisation: i.e. Renewables Obligation helped, but although the cost of renewables  have dropped, the risk to revenue has increased as the wholesale market is increasingly volatile.  A way to de-risk investment would help.
  • We’re currently sceptical that ‘subsidy-free’ deployment of onshore wind at scale will work. Although Levelized Cost of Electricity (LCOE) data for onshore wind suggests positive Net Present Value (NPV) when compared to projected wholesale prices, these are often based on base-load power curves and not actual captured prices. Moreover lenders not just interested in total revenue, but regular repayments – therefore wholesale market volatility matters. It is possible, but cost of capital is high and only viable for small pool of investors capable of pricing volatility/ risk.
  • So what’s the answer? A CfD ‘floor and claw’ mechanism can reduce risk for investors and largely remove the need for subsidy.
  • The approach would see CfDs let by auction whereby developers would bid a required floor price (£/MWh) for the project.
  • As with today’s CfD there would be a strike price – the difference here would be that when the market reference price falls below the floor price the consumer would top-up to the floor. Once the market reference price goes above the floor price, the contract holder pays back the top-up (the ‘clawback’ mechanism). Any revenue above the floor price (once the ‘clawback’ has been paid) is all upside for the generator.
  • Expectation that competitive bidding for floor price CfD would result in bids well below the long-run wholesale price – bidders would focus on a floor price sufficient to raise debt.
  • The rebate model is not a subsidy but ‘working capital’ which will be returned to the consumer/ supplier  — therefore no impact on carbon levies and reduces market volatility impacts.
  • Current CfD would need changing, but not a fundamental re-work.
  • As not a subsidy support it would allow for uncapped levels of capacity to come forward.
  • The floor and claw model is being suggested as a revenue-stabilising model.

Mark Knox, Director of Energy Strategy, GFG Alliance

Mark gave Sean Parson’s apologies for not able to participate.

GFG Alliance: 5000 people employed in the UK, 8000 in Australia and several other countries.  Vertical integration model e.g. own mines and steel manufacturing.  On-site generation makes them more competitive.  Building 168MW wind project – the largest non-subsidised project in the UK.

1% reduction in cost of capital at Hinckley C, would reduce the power price by £7/MWh.

Mark provided two slides about their 168MW Glenshero Windfarm Project and outlined the development.  He said he felt lucky that they can secure price internally – and at, for example, £50/MWh, GFG are fine with that.

The Glenshero project is located on GFG’s Glenshero Estate in the Scottish highlands, around 28 miles North East of their aluminium smelter in Fort William.   Section 36 application submitted end of September 2018.  Engaging with local community to discuss potential for local ownership/investment, a community benefit fund and Local Electricity Discount Schemes (LEDS). (Community benefit/LEDS  to be funded at less than the £5k/MW/year that wind projects have historically provided.)

Project to have 39 4.2-4.5MW turbines (down from 54 machines in the initial scoping).  Tip height 135m to be consistent with nearly SSE Stronelairg project which is currently in construction. Grid connection agreement to connect into the Beauly Denny line, which runs through the Glenshero estate.  Capex is c£150-160m.   Considering the potential to co-locate battery storage in the future.

Would like to see more onshore in the UK, but for that to happen, the risks need to be addressed.  E.g. floor and claw, floor, guaranteed CfDs etc: things that reduce risk.

Intend to use their own turbines and capture the supply chain in the UK.

Planning is challenging; would appreciate a policy change to let local government make their own decisions about what happens in their area.


The following points were part of the Question and Answers session and the discussion:

  • Wind and energy storage: GFG Alliance looking at this at all sites; think it’s over five to six years away.
  • Ed Reed: Lots of competition for ancillary services; costs come down and costs to customer reduced; good for consumers but harder for investment. Again, volatility of current market is a barrier.   Network charges are also unpredictable.  However, renewable costs are falling. Will happen; but question is when.  RenewableUK agreed.
  • Size of required storage? To cover the two peaks and two troughs of demand: two to four hours.  More to cover wind intermittency.
  • Public opinion: had RenewableUK, in their commissioned survey, found there was a split in rural versus urban? Very little divide:  65% rural, urban around 68%.   (None of the sub-groups considered showed under 60% support.)
  • Question about the floor and claw, not just making the CfD complicated? Why not just bid in a higher price into the auction?    Ed Reed:  PPAs are too short; 5-7 years coming in.  Floor and claw is really to allow for longer contract.
  • Discussion about the costs of interconnection to islands in Scotland and that the islands would be treated as offshore so that projects may compete for CFDs.
  • Discussion about the effect of reduced thermal power and the potential of no wholesale price in the future when all power is renewables.
  • Discussion about the cost of the capacity market.
  • Footnote 49 of NPPF – planning issue. Government says large onshore wind is not acceptable in England.  But that said at least there will be a different approach taken to repowering; to stand still we need to do a lot.

After the discussion, questions and comments, the meeting closed at 5.40pm.