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    Limiting wind farm revenues could cut electricity prices


    August 10, 2022 - Irish Times

     

      Windfall taxes on energy company profits might sound good politically, but they will not bring down prices.

      Families are paying more than €2,500 a year for electricity because wholesale charges are high, a consequence of soaring fuel costs, which Russia has aggravated by cutting natural gas supplies to Europe.

      What we need is to cut wholesale costs. Renewable energy could provide a partial solution, but not in the way the Government would have you believe.

      The Commission for the Regulation of Utilities (CRU) calculates that wind farms will earn €330.23 a megawatt-hour (MWh) revenue for the electricity they sell over the 12 months from October, six times more than they were predicted to make two years ago.

      These businesses do not have to buy gas, but they can sell electricity at high wholesale prices, so are going to make big profits.

      We know this because wind farms are viable when they sell power at €72.69 MWh and €75.24 MWh, the prices guaranteed to most of them under the Renewable Energy Feed-in Tariff (REFIT) support scheme for their industry.

      In fact, they survived and expanded while selling electricity at those prices, about 80 per cent less than the regulator believes they will make this winter.

      While REFIT guarantees a minimum price - which electricity customers underwrite - it sets no maximum.

      So the wind farms benefitting from that consumer-backed insurance of their revenues profit from those same consumers.

      This contrasts with the State's new Renewable Energy Support Scheme (RESS), which obliges energy companies to return cash to customers if they sell electricity for prices higher than those agreed under that system.

      Only a few wind and solar farms operate under RESS, although that number is poised to grow.

      Consequently, one route worth exploring is to change the law governing the REFIT scheme to limit wind farm revenues to the minimum price that it guarantees.

      But instead of refunding cash, the legislation should simply declare that they can only sell wholesale electricity at this price.

      As renewables provide about 40 per cent of our electricity, cutting their price by 80 per cent should reduce the overall average wholesale price of power by about one third.

      Cry foul Some wind farms could cry foul, even threaten legal action.

      So once it publishes the required legislation, the Government would need to tell the industry that the other option is a windfall tax.

      It has an advantage in any negotiation, the State owns several companies that own wind farms, including the ESB.

      Big players Some of the other big players, Energia and SSE Airtricity, are well known as they supply electricity to homes and businesses.

      They may decide that it would not look good if they were to oppose Government measures to curb energy prices.

      The other possible barrier to this is that wind farms could argue there is no market mechanism that makes it possible for them to supply power at the REFIT-guaranteed price.

      Well, the Single Electricity Market Operator has come up with systems for dealing with any number of complexities, including underwriting renewable revenues, so that may not hold much water. Also, as these businesses have their own connections to the national electricity grid, it should be possible to identify each of them along with the power that they supply.

      Alongside this, Government should warn electricity suppliers - the businesses that sell power to us - that if they do not respond to the fall in wholesale costs by cutting their prices, it will hit them with a windfall tax.

      Refund the cash If there are real reasons preventing this approach, the Government and Oireachtas can still change the REFIT system to limit wind farm prices to the minimums that it guarantees

      and then refund the cash to electricity customers. This is more awkward than simply cutting wholesale charges - and thus our bills - but it is still better than the alternative, which is to have families struggle with out-of-control costs while failing to properly exploit cheap renewable power.

      You could argue that the regulator's calculation is only a prediction, so wind farms may ultimately get a different average price for their electricity.

      That is true, the price could be lower, or higher. But it is clear that those businesses will be well paid for their power, do not have to buy expensive gas and will profit accordingly.

      The Government introduced REFIT because the energy industry said no one would invest in renewables without it.

      Homes and businesses bankrolled the scheme. For most of the past 20 years, the market price for electricity fell short of what REFIT guaranteed.

      Electricity customers made up the difference through a public service charge added to their bills. Between 2000 and 2020, that cost them almost €2.1 billion.

      In light of that, it seems only fair that families and employers benefit from green energy's potential to provide cheaper electricity at a time when wholesale gas prices are so volatile globally.

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