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Energy companies profit from wind farms without building many more windmills

News

4th January, 2008

Subsidies paid to electricity generators through users bills are generating profits for the companies without translating into many new turbines.

A massive expansion in wind energy is needed to meet the government’s target or producing 15 per cent of the UK’s energy renewably by 2015. Currently, only Malta and Luxembourg generate less energy from renewable sources than the UK in the European Union.

The government’s method of promoting growth is subsidies. These are paid through consumers electricity bills and are set to rise from over £600m a year to £3bn a year by 2020.

These subsidies are called Renewable Obligations (RO). The RO requires electricity suppliers to derive a proportion of power, known as renewable obligations certificates (ROCs), from renewable energy generators.

The cost of these is passed on to the consumer.

The RO means consumers in effect pay the same to assist the renewable industry whether a lot or a little renewable electricity is produced.

If too little is produced, the subsidies are shared out among a smaller band of producers, giving them higher returns but not securing the building of new wind farms.

According to the Financial Times these subsidies are enriching the big players in the energy market rather than adding more renewable energy.

Small companies are finding their applications caught up in the planning system. Planning laws are not set to change until 2009 and will favour the larger operators over the small.

According to the FT, Ofgem claim big electric utilities, the UK’s major polluters, are able to make more that £100 per megawatt hour. This means that RWE Npower could expect to make more than £90m a year.

But high electricity prices mean wind farm operators could be making enough from selling electricity alone to be almost profitable, while the amount they receive from RO certificates in effect doubles their income. The consumer pays twice.

The proportion of electricity coming from renewable sources has scarcely budged in recent years - it rose from 4.2 per cent in 2005 to 4.6 per cent in 2006, the latest year for which government figures are available.

The amount of new wind capacity added in 2007 was less than three-quarters of that built the year before.

Quoted in the FT Peter Atherton, head utilities analyst at Citi Investment Research, said: "It's a bonanza. Anyone who can get their nose in the trough is trying to."

 

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