Latest industry figures show that £53 million has been paid out to green energy companies in 2014 for shutting down their generation plants.
The generation plant, predominantly wind farms have been shut down at certain times because UK’s power network is unable to cope with the power produced. The companies receive compensation payments for not producing electricity.
The rising total of so-called “constraint payments” to wind is already a third higher than the entire 2013 total.
The payments, which are funded by consumer energy bill surcharges, reflect the problem of rapid construction of wind farms across the country without sufficient cable networks to carry the power produced.
The overwhelming majority of the payments to date have been to wind farms in Scotland, where the bulk of wind farms are located.
The payments are highest in Scotland because electricity demand in Scotland is insufficient to use much of the power produced on windy days, but power interconnectors to take the power south of the border are not yet completed. As a result National Grid has to pay the wind farms to stop generating in order to keep supply and demand balanced.
A multi-billion pound programme of network upgrades to strengthen the connections to and across Scotland is currently under way and National Grid anticipates that the payments should subside when these new connections are in place.
The true cost of the problem is even higher because if National Grid is unable to transmit the power a wind farm has contracted to sell, it is then forced to pay other generators south of the border to fire up instead.
When the system is constrained, Grid selects which plant to pay to turn off by asking them to submit bids at the lowest cost they would be prepared to do so.
The power plant that switches off still gets paid the power price it would have received from selling the electricity, but can seek compensation over and above that.
When wind farms switch off, they miss out on the subsidies - about £45 per megawatt hour (MWh) for onshore turbines - that they would have been able to claim in addition to the price of power. The prices wind farms were paid to switch off averaged more than £80/MWh in 2014 - far in excess of that lost subsidy income.
By contrast conventional fossil fuel power plants often actually submit negative bids – paying National Grid some cash back if they are switched off – because they are saving on fuel costs by not generating.
National Grid points out constraints can be paid to any kind of generator when the Grid is unable to transmit their power for any reason - for example if part of the Grid is down for maintenance - and do not solely reflect the expansion of wind farms.
National Grid has revised its estimates for constraint costs, to a total of more than £400 Million over the next six years. However, National Grid has refined its modelling approach to estimating future constraint costs.
Dr John Constable, the director of REF, said: “The reckless policy of wind farm construction in Scotland… has created an ongoing bonanza for wind farms, which are actually paid more per unit to stop generating than to generate. It would have been cheaper to avoid building so much wind in remote locations in the first place.”
Mr Constable said the prices wind farms were paid to switch off averaged more than £80/MWh this year - far in excess of that lost subsidy income. A “fair price” would be nearer £50, he said.
A spokesman for energy regulator Ofgem said: “National Grid’s costs for making these payments have increased as more renewable generators have connected to Britain’s networks before investment programmes have been completed to build new capacity”. Last year Ofgem approved a major 8 year network investment programme to address this through renewing and building new capacity.
Ofgem sets National Grid strong financial incentives to manage these costs as efficiently as possible. They also have powers to take action against licensed generators if they consider that generators are gaining excessive benefit when constraints occur.
Since Ofgem obtained these powers, prices paid to generators by National Grid to curtail wind have fallen. The average price paid to wind farm operators to reduce generation prior to the powers coming into force in 2012 was £197/MWh. The average price paid in 2014 was £83/MWh.
However, one wind farm owner in Scotland is seeking permission to increase the number of generation sets considerably. Obviously being constraint off is profitable. The question that strikes me is does the UK need more windpower?