I must admit I laughed out loud when reading a November 16 report by the BBC detailing the Rishi Sunak government’s latest award of massive new subsidies to the UK’s offshore wind developers.
“The price paid to generate electricity by offshore wind farms has been raised by 66 per cent as the government tries to entice energy firms to invest,” the BBC report begins, adding, “It comes after an auction for offshore wind projects failed to attract any bids, with firms arguing the price set for electricity generated was too low. The government has lifted the price it pays from £44 per MWh to £73. It is hoped that more offshore wind capacity will lead to cheaper energy bills.”
That doesn’t make a lot of sense: paying (a lot) more for electricity is going to mean cheaper bills?
The UK has also raised the price for floating offshore wind to a staggering £176/MWh. That’s bad news for us here in the USA, as we don’t have a lot of seabed suitable for fixed offshore wind. Most of our offshore wind power is planned to be hugely expensive floating plant. Yet government officials and most media continue to parrot the idea that renewable energy is cheap without apparent curiosity.
Meanwhile in the US, the Biden government continues to license more offshore wind projects even in the face of recent major write-downs by big wind developers and the decision by Orsted to cancel two major projects off New Jersey. On October 31, the administration awarded Dominion the license to develop the Coastal Virginia Offshore Wind (CVOW) commercial project, a 900 MW development off Virginia Beach. At the same time, Biden regulators continue their work to shut down the US coal-fired power generation fleet entirely.
While the Sunak government in the UK focuses on ways to disguise what is a de facto bailout for the financially troubled Big Wind operators, Xi Jinping’s communist government in China is busy devising ways to add even more new coal-fired power generation to its own grid. To that end, China’s National Development and Reform Commission (NDRC) recently announced a new program in which the Chinese government will subsidize the building of new coal-fired electricity generation plants. The new subsidy goes into effect January 1, and is a key part of an effort to ensure power grid reliability and stability into the future.
The Chinese government understands the vital need for abundant thermal baseload and dispatchable generation in any stable and reliable power grid. Whether London, Washington DC, or the UN like it or not, coal remains the cheapest and most abundant fuel source available to fill this role in most developing nations. So, China, which already has more new coal plants in the development chain than the rest of the world combined, will now subsidize the building of even more new capacity starting in 2024. China says it will achieve “carbon neutrality” – this is not the same as net zero, as it doesn’t include other greenhouse gases than carbon dioxide – in 2060, ten years after the US and UK will apparently be at net zero.
India, too, is moving more heavily to reliance on coal. India’s Coal Ministry announced November 13 plans to increase domestic coal production to 1.404 billion tonnes by 2027, with plans to raise production to 1.577 billion tonnes by 2030. The Ministry said the increased production plans are in anticipation of the addition of another 80 GW of new coal-fired generation capacity in the coming 6 years. Domestic demand for thermal generation has risen by 20 per cent in just the past year, and India says it’s not doing net zero until 2070.
The BBC quotes unnamed corporate sources as claiming, “electricity produced out at sea would remain cheaper and less prone to shock increases compared with power derived from gas-fired power stations.” There have certainly been gas price shocks in Europe following Vladimir Putin’s war in Ukraine, but UK wholesale electricity prices have dipped below the new offshore-wind strike price this year: and that is by no means the highest strike price being offered.
This reliance on tired narratives that have shown little if any relationship to observed results as the basis for massive debt-funded spending compelled by government policy mandates perfectly illustrates why the political class is the worst possible segment of western societies to be making these energy decisions for the rest of us. This reality also illustrates why this effort to override the market is leading inevitably to bad outcomes.
The hard fact is that wind power and other renewable energy sources are expensive, not cheap. If they were actually cheap, we would have started using them without any government action. The Western world will make its industries uncompetitive (or in some cases, such a primary steel, non existent) and its people poorer by adopting renewables, and will still have to retain a duplicate thermal power sector to take over when the wind isn’t blowing and the sun isn’t shining. Texas is now having to subsidise the building of gas generation for this purpose, as renewables subsidies have warped the markets beyond recognition: there’s no shortage of gas in Texas.
And no matter what anyone tells you, there is no move away from fossil fuels taking place in some very large world economies. An “energy transition” which is not happening in China or India isn’t really a transition at all.
David Blackmon had a 40 year career in the US energy industry, the last 23 years of which were spent in the public policy arena, managing regulatory and legislative issues for various companies. He continues to write and podcast on energy matters