How the energy price crisis turned wind farms into giant money spinners

Spinning in the Lammermuir Hills in southern Scotland, the 60 turbines at the Crystal Rig II wind farm have been powering homes for more than a decade. When they came online in 2010, electricity prices were around £40 per MWh and wind power was still a relative rarity in the UK.

Its output has become a lot more valuable recently, in a boost for owners Fred Olsen Renewables, part of the Bonheur group controlled by Norway’s Olsen shipping family. More than 15 months of surging electricity prices, hovering north of £150 per megawatt-hour, four or five times long-term averages, have boosted wind farms.

Yet now wind farm owners face questions about whether they are making too much. High wholesale gas and electricity prices have pushed household and business bills to unsustainable levels, forcing the Government to shield consumers with an estimated £65bn of borrowing over just the next six months.

Ministers now want to reform the market, limiting the revenue that wind farms can make. At issue is the mismatch between the costs to generate wind power and the prices it can fetch. The market price for electricity is generally set by the price of dominant gas-fired generation, where costs have climbed. But wind farm owners do not have fuel costs, meaning the electricity price increase is potentially all upside. Most wind farms currently operating in Britain also receive subsidies too.

The industry insists that a picture of it wallowing in cash is wide of the mark, as many developers would have sold much of their electricity at lower rates well before the current price surge, to get the long-term, stable returns they prize. Newer wind farms are also on fixed price contracts with the Government, at rates which mean they are currently paying money back to consumers. “In the wind industry in general we’re not seeing the excess profits being made in the oil and gas sector,” says Barnaby Wharton, director at trade body Renewables UK.

Yet analysis of company accounts does shed some light on who is positioned to benefit in the current climate. Among the largest is the £7bn infrastructure investor Greencoat Capital, whose portfolio of more than 40 UK wind farms generated £328.8m in cash for the half-year to June. This was “above budget due to high power prices, primarily reflecting high gas prices”, according to its accounts.

Listed fund The Renewables Infrastructure Group (TRIG) cites “elevated power prices driven by higher gas prices” in its strong half year results. About 70pc of its output from its portfolio of 24 wind farms in Britain is subsidised or on fixed power prices. TRIG and others point to the risks they have taken and years of low prices, as well as high levels of investment back into renewables.

Ventient Energy, meanwhile, an investment fund advised by JP Morgan, sold electricity from its more than 30 onshore wind farms for a “considerably higher than planned” £104 per MWh in 2021, helped by higher wholesale prices. Profits fell for 2021, however, due to lower wind speeds. The company’s parent is based in the Cayman Islands.

Other wind farm owners in the UK include the Chinese state’s China General Nuclear, which in 2014 bought three small wind farms from EDF. Its Rusholme wind farm, North Yorkshire, which sells its output to EDF, doubled its profits to £2.3m in 2021 helped by higher power prices.

In May, directors said the increase in gas and electricity prices had helped its revenues. Major energy players are at pains to highlight the limits on their earnings. German energy giant RWE, whose fleet includes a majority stake in the 116-turbine Rampion wind farm off the coast of Sussex, says it has sold roughly 70pc of its output for this winter at “less than 10pc of the current market prices”. The overall price it will get is “very uncertain and will depend on how the winter develops”, a spokesman adds.

It says its forward sales cover its share of the new phase of its majority-owned Triton Knoll wind farm off the Lincolnshire coast. The farm’s developers were criticised after delaying the start of a government subsidy contract which would limit the new turbines’ earnings to £88 per megawatt-hour.

SSE, the FTSE 100 renewables and networks owner, also says it has sold the “vast majority” of its wind output for this year and next at  “a fraction of current wholesale prices”. Scottish Power, owned by Spanish giant Iberdrola, sells into the futures market rather than the spot market. Operating profits for its renewables business rose from £184.5m to £263.4m during the six months to June, helped by a 23pc surge in wind output but also “higher energy prices” and subsidies.

Both Scottish Power and the French state’s EDF sell electricity from their large wind farm fleets to their retail divisions. All energy retail companies are now being heavily subsidised by the Government so they can keep household bills down at an average £2,500 from this month. EDF points to rules preventing power companies cross-subsidising between generation and retail business. “We are audited to demonstrate that sales of power between these entities are enacted at fair market price,” it says.

The industry was spooked by the threat of a windfall tax on the sector. The idea has lost traction, with officials struggling to work out the extent of any windfall taxes. New windfall taxes have been opposed by Liz Truss. Yet it has helped bring developers to the table. Talks are now focused on moving more generators on to the 15-year fixed price deals with the Government under which newer wind farms are already built.

Under the deals, known as contracts for difference, developers are guaranteed a fixed price per MWh, backed by a levy on consumer bills, but do not get to keep any upside if the wholesale price is higher than the fixed price. Energy UK, the trade group, has estimated that moving all renewable and nuclear generators onto the deals could save households up to £250 per year. Critics are concerned that consumers might be locked into over-generous deals.

Yet action is likely. EDF says it is “speaking regularly to the Government” about the arrangement. RWE says it “fully supports” allowing existing projects to move on to such deals. Fred Olsen Renewables says it will continue working with the Government and the industry to help tackle bills.

A spokesman for the department for business, energy and industrial strategy, said: “High global gas prices and linked electricity prices have given added urgency to the need for electricity market reform. The Government is in discussions with low carbon generators on ways to bring electricity prices in line with the UK’s cheap, renewable energy sources, as well as consulting on a range of market reform options to bring down energy costs.”