The Saudi Arabia Abu Dhabi of Wind 2

QUIZ ANSWER

Which is taller, The Shard or the planned 20 MW wind turbines for Norfolk Boreas?

It depends on where you measure the height. The turbine hub will be lower than The Shard, but the blade tip will reach higher at the zenith of its rotation. The turbine tip reaches to 350 m, while The Shard is 310 m tall. [Do excuse my lack of artistic skill.]

Now back to our regular program. As you have probably figured out by now, I’m a simple man and don’t understand money. I consider myself rich if I can stand a round at the bar. Thus my understanding of economics is sorely wanting. Nevertheless, I’m going to have a crack at, er, opening a company’s accounts and reading out the numbers.

My target today is Dudgeon Offshore Wind Farm. Why Dudgeon? Well, it has the luck to be the first wind farm in the alphabet out of the 20-ish in the central North Sea that are presently operational. And as its accounts for 2020 are newly available, it seems like a good place to start.

A dudgeon dagger is also known as a bollock dagger, not because of its preferred target, but because of the shape of its guard. But that is not material here. Dudgeon the wind farm cost £1.5 billion and started operation in 2017. Its 67 turbines are 110 m tall and the rotor diameter is 154 m. Capacity is 402 MW.

The 2020 accounts say that the wind farm generated 1.728 TWh. We can work out the capacity factor by dividing one by t’other……………. an astounding 49%.

Yeh, but what about the money? Income was £298.1 million, and profit £134.1 million. Pretty tasty, although of course you do have to pay down the bill and a half someone had to stump up for it.

If you’re thinking, “This 298 million came from selling the electricity, am I right?” then no, you’re wrong. The earnings from selling the electricity were………….

£50,818,000

I don’t think you can finance £1.5 billion with that. For sales of electricity the 50 million equates to £29.41 / MWh. Pretty low. Well, much of 2020 was lockdown city. Demand for energy was low and so were costs.

So where does the rest of the revenue (kof, 81% of it) come from? Contracts for Difference. For the uninitiated, this is a UK government scheme where renewable projects negotiated “strike prices” with the government, such that if the cost of electricity was below said strike price, then the bill-payer would pay the difference. Income from CFD was worth

£241,709,000

That’s a tasty £140 / MWh.

Funnily enough, that factoid is something that Wikipedia does not think is of interest to its readers, but it does point out that:

The estimated annual production is 1.7 TWh which corresponds to 410,000 homes each using 4,100 kWh/yr.

There have been 3 rounds of Contracts for Difference auctions. It is the result of the 3rd auction that has got certain correspondents having a urinary emergency, because offers have come in to provide leccy at £40 / MWh (2012 prices). But Dudgeon actually pre-dates even the first auction. I can’t quite remember what happened, but to get the ball rolling, Ed Davey (the last dumpling left in the Lib Dem stewpot) gave some projects a shoo-in or something. The first tranche of offshore wind was offered £150 / MWh at 2012 prices. In 2020 quids, that £150 is worth £172.

So if the leccy in 2020 costed £172, the windfarm would just get the cost of the leccy. If leccy costs less than £172, we humble plebs spot them the difference. For last year, that’s £140 / MWh.

The CfD reduces the risks faced by low-carbon generators, by paying a variable top-up between the market price and a fixed price level, known as the ‘strike price’. As well as reducing the exposure to volatile and rising fossil fuel prices, the CfD protects consumers by ensuring that generators pay back when the price of electricity goes above the strike price.

–DECC 2013 in stupid or optimistic mode

I think we ought to be able to subtract profit from revenue to find out how much it cost Dudgeon to supply those 1.728 TWh of leccy. That cost is about £164 million, which dividing one by t’other gives the cost of providing the leccy as £95 / MWh. As an aside therefore it seems unlikely that the third auction round bids of £40 / MWh are going to come through. [With inflation these offers are now up to £46.50 / MWh. It paid the likes of Dudgeon to get in on the ground floor.]

Anyway, to return to the profit. This was £134.1 million. You can consider this a direct payment from you to the owners of Dudgeon Offshore Wind Limited, through the medium of your electricity bill. As there are about 66,500,000 people in the UK, that makes a nice round £2 coin per person. That doesn’t sound too bad, right? After all, it’s a British windfarm, and the money will trickle down. Actually, I’m being unfair, because there is tax to pay on the profit. The actual dividend for 2020 was

£109.6 million

But who got the dough?

The owners of Dudgeon are: Equinor New Energy (35%), CRC New Energy (30%) and Masdar Offshore Wind (35%). Fairly bland-sounding names. Luckily the filing includes the ultimate beneficiaries of the ownership these days.

Equinor was formerly Statoil, the Norwegian state-owned energy company.

CRC stands for China Resources (Holdings) Company, owned by the Chinese state.

Masdar is part of the Mubadala Investment Company, owned by the government of Abu Dhabi.

Said Sir Ed in 2013:

This package will deliver record levels of investment in green energy by 2020. Our reforms are succeeding in attracting investors from around the world so Britain can replace our ageing power station and keep the lights on.

Investors are queuing up to express their interest in these contracts. This shows that we are providing the certainty they need, our reforms are working and we are delivering ahead of schedule and to plan.

Final point: in the previous episode, we found that Future Energy Scenarios’ Consumer Transformation model asks for 645 TWh from wind, 502 TWh of it offshore. Bearing in mind that Dudgeon produces 1.7 TWh (0.3% of that total) at an annual cost to us of £298 million, we begin to see the scale of the problem.

As to becoming the Saudi Arabia of wind? Well, so far we’re doing a good job of exporting money at least.

8 Comments

  1. Masterful, Jit, thank you.

    I have had in mind for a little while writing something about Contracts for Difference and the ownership structure of much of the UK’s renewables industries, and have started sorting out the raw materials, but haven’t done anything with them yet. Happily, both subjects are huge, and if and when I do get around to writing something, I don’t think either of us will be treading on the other’s toes. 🙂

    Like

  2. “Capacity is 402 MW. The 2020 accounts say that the wind farm generated 1.728 TWh. We can work out the capacity factor by dividing one by t’other……………. an astounding 49%.”
    Loved the article – it takes great art to make a complex topic simple and entertaining. My only problem is the above quote, there seems to be some intermediate function missing?

    Like

  3. Brilliant. But even if the profits paid for by British consumers go to China, Norway and Abu Dhabi, don’t forget the well-paid green jobs created here in Britain, for bankers, lawyers, accountants and who knows what fixers and palm greasers necessary to keep the whole thing on the road. Such opportunities didn’t exist when idle British railwaymen shipped coal mined by greedy British miners to inefficient nationalised British power stations. (The correlation between CO2 emissions and unionised labour is something that the IPCC should be looking into.)

    Like

  4. Tony, yes there is an intermediate number, the 8766 hours in a year. Multiply 402 MW by 8766 and you get the theoretical maximum output of 3.53 TWh.

    Geoff, it is possible that parts of the Siemens turbines were made in Hull. That’s something I should find out. Wiki says the maintenance contract went to a Danish company, but they probably employ significant numbers of locals.

    Like

  5. I don’t think we humans are capable of visualising numbers greater than a few hundred (and this takes special training (as when counting nesting gannets on a cliff face)). So a CfD of £241,709,000 is somewhat difficult to picture. Let’s try to see it as a pile of £10 notes. I am reliably informed that brand spanking new British banknotes are 0.113mm thick. That means that a million of them piled one upon the other would be 11.3 metres high, about the height of two and a half London buses one on top of the other. So a pile of £24.17million £10 notes would reach a height of more than three-hundred and forty metres. That’s more than double the rotor diameter of one of the Dungeon wind turbines. Easier to visualise? I thought not.

    Just think if we still used £1 notes, the pile would have been nearly three and a half kilometres high.

    Liked by 1 person

  6. “So where does the rest of the revenue (kof, 81% of it) come from?”

    Bloody inflation.

    In May 2016, Paul Homewood reported Sheringham Shoal’s owners harvested 70% of revenue from subsidies (ROCs)

    https://notalotofpeopleknowthat.wordpress.com/2016/05/15/subsidies-profits-at-sheringham-shoal-wind-farm/

    Earlier this year Andrew Montford/Bishop Hill highlighted Beatrice’s owners were handed 75% of revenue via CfDs for the year ended 31st March 2020.

    The whingers about current gas-price rises (particularly Carbon Brief’s Dr Sim Evans) deliberately ignore how much electricity prices would fall if subsidy largesse didn’t inflate our ‘leccy bills.

    Liked by 2 people

  7. The frightening thing is they now seem to be engineering wholesale prices to be above CFD strike prices to make renewables seem like a bargain.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.