HC 517 The Economics of Wind Power

Memorandum submitted by Ecotricity (WIND 80)

1) Introduction

1.1 Ecotricity is an independent renewable energy supplier and generator, with over 60,000 customers across the UK. Ecotricity was founded in 1995 and we built our first windmill in 1996. We were the first company in the UK to offer green electricity.  We own and operate 53 windmills and the country’s first large scale sun park. One in nineteen of all the onshore windmills in England are Ecotricity’s.  We already have 19 windmills with planning approval, waiting to be built - and a further 78 windmills for which we a re seeking planning approval. In our wind energy development we undertake every step ourselves, from site selection, through planning and construction to the long term operation and maintenance of our own windmills.

1.2 We were the first company in the UK to use a permanent magnetic generator enabling more efficient generation from variable wind speeds.

1.3 In addition to this we were the first company to offer our pioneering Merchant Wind Power scheme . This involves build ing wind mills on industrial and commercial sites, powering household names and giving them real environmental and economic advantages.

2) Cost of wind compared to other low carbon technologies

2.1 Our expertise is in onshore wind so we have concentrated on this. We believe that other parties will be better qualified to give evidence about the costs of other technologies.

2.2 Based on data for a prospective project, our modelling shows that for a 20.7 MW wind farm, made up of 9 turbines the total CAPEX would be £19.5M. This makes the CAPEX per MW £1M.

2.3 With an estimated average capacity factor of 24.35% annual generation would be 44,100 MWh, and the project lifetime generation would be 1.1025 TWh. Lifetime maintenance costs would be £0.5M per MW installed.

2.4 Please note that 90% of the time, actual capacity factor will exceed our estimates.

3) Transmission Links

3.1 We include the cost of transmission links in our CAPEX.

4) Back-up Capacity

4.1 The costs of back up capacity are difficult to quantify. National Grid considers a market capacity margin of 15% to be optimum and the base load and peak plant is considered necessary backup for renewable generation. There is currently no need to build additional generation capacity but grid upgrades are needed.

5) Subsidies for Wind

5.1 Most support for large scale wind comes from Renewable Obligation Certificates (ROCs), which renewable energy generators receive and pass on to suppliers when they sell their power. Suppliers are required to purchase an increasing number of ROCs year on year.

5.2 Installations of less than 5MW are able to apply for Feed-in-Tariffs (FiT). This is also currently subject to a review by DECC and it is therefore difficult to give an accurate figure until this is known.

5.3 According to DECC’s Annual Energy Statement 2011, green policies such as the Renewables Obligation add £20 to the average domestic fuel bill each year. Our figures show that of this, £10 goes to wind power, £5 of which supports on shore wind.

6) Examples from other Countries

6.1 Germany’s FITs system, which has been running since 2010 provides an example of stability, which the UK Government should mirror. Unlike the experience of the renewable energy industry in the UK, which has been marked by unpredictability in Government support; the German FITs scheme has been stable and enabled a flourishing renewable energy industry.  Around 20% of Germany’s electricity is produced by renewable sources, 3% of which is solar; compared to just 9.5% for all renewables for the UK.  This has also resulted in around 130,000 jobs created in the last decade.  Reductions in German FITs tariff levels have been much more predictable and followed longer periods of stability in the scheme.

6.2 We would like to highlight the consistency of the German system, which has had the same subsidy scheme for over a decade, compared to the lack of predictability in UK, in which subsidy schemes have continuously been superseded from NFFO to ROCs, to FITs and CfD FITs as proposed under the Electricity Market Reform.

7) Making wind power more acceptable to host countries

7.1 We contest the notion that wind power is unpopular. Over the last 10 years various surveys have found consistent enthusiasm for wind power with the latest survey in 2012 by Ipsos Mori and YouGov finding between 60% and 70% of the public supporting an increase in wind power. Furthermore, despite protestations from a minority of the population that object to wind power, there is no evidence to support the hypothesis that wind farms reduce house prices in normal circumstances [1] .

7.2 It is not clear why windmills are perceived as less acceptable to local communities than other forms of generation such as coal or nuclear.