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The True Cost of Wind Power

Wind power is often sold to us as the ‘cheapest’ option. With the current fossil fuel prices that may be the case, but is the quoted strike price of £40 per kWh really valid?


The wind turbine manufacturers appear to be struggling:

Manufacturers such as Vestas Wind Systems A/S are seeing losses pile up as orders collapse at a time when they should be capitalizing on the turmoil in natural-gas markets. To blame -- at least in part -- is the industry’s insistence that clean electricity can only get cheaper, according to Henrik Andersen, chief executive officer of the Danish wind giant.

Vestas expects its profit margin to be around -5% in 2022.

“The output from the turbine has never been more valuable,” Andersen said. “But we are losing money in manufacturing a turbine.” Vestas has raised prices more than 30% in the past year to help stem losses.


New installations no longer seem to be viable at the agreed prices:

A major offshore wind project in the Massachusetts pipeline “is no longer viable and would not be able to move forward” under the terms of contracts filed in May. Both developers behind the state’s next two offshore wind projects are asking state regulators to pause review of the contracts for one month amid price increases, supply shortages and interest rate hikes.

Utility executives working with assistance from the Baker administration last year chose Avangrid’s roughly 1,200-megawatt Commonwealth Wind project and a 400 MW project from Mayflower Wind in the third round of offshore wind procurement to continue the state’s pursuit of establishing cleaner offshore wind power. Contracts, or power purchase agreements (PPAs), for the projects were filed with the Department of Public Utilities in May.


I have previously looked at the viability of the Dogger Bank Wind Farm. This is all taken from the official Dogger Bank website:

The project is designed in three similar phases but I will just look at one phase:


Installed capacity 1.2 GW

Expected annual output 6 TWh

Cost £3 Billion

Strike price £40 per MWh.

Expected Service life not mentioned.

Nameplate output 1.2 x 8760 GWh per year =  10 512 GWh per year = 10.5 TWh per year.

An expected annual output of 6 TWh gives a capacity factor of 57%. Is this realistic?

What will they earn at the strike  price?

6 TWh at £40 per MWh  = £240 Million per year.

Straight payback of £3 Billion in 12.5 years.


So with no costs for maintenance, no interest or dividends paid and a very optimistic capacity factor there is a 12.5 year payback on an asset with a 20-25 year lifespan (no one really knows). That is simply not a valid business model. A more realistic strike price is £80-100 per MWh which takes you into the NPP range.

How much of the low strike price has simply been gambling on higher electricity prices and then taking the market rate?

Does anyone have any more encouraging figures?

  • I would change policy to ensure that all future tax payer subsidized green energy contracts are awarded on the proviso that the generators will only be able to sell directly to the UK at cost+5% max and not on the global energy market. Then let us see how many will step up and commit.

    Isn't that pretty much what the "strike price" system already does - fixes the price/MWh the generator receives - independent of the volatile UK "market" price? And yes, many have indeed stepped up on that basis.

    It might be better extending the same system to fossil fuelled generators too - by the same argument those taking gas out of UK North Sea gas fields and using it to supply the UK electricity grid, could similarly be divorced from the global market. That might cut down massively the huge subsidies (e.g. £400+ per household) that are currently needed to prop up the fossil fuel sector (not to mention the tax breaks for exploration companies).

    I also believe that the green energy providers have now reached maturity and should no longer receive any form of state subsidy whatsoever. If they truly believe that they are the cleanest cheapest source of electricity then let them go alone and prove it.

    Arguably both the generators and the UK electricity market system have some maturing still to do. To some extent, with offshore wind "strike prices" auctions coming in far lower than the general gas generated price, even before the current crisis, we're certainly getting there. The problem for investors (often pension funds) is future uncertainty - and much of that is due. not to the variability of renewables, but to the long term unpredictability of the electricity market - mostly driven by the volatility of fossil fuel prices. Ultimately most people see that reducing our dependence on imported energy is of strategic benefit, and (in whatever form that takes) that will mean changes, and changes cost and need to be paid for - even if there is ultimately a long term saving. The exact mechanisms for enabling changes are mostly political tactics - whether it's done through general taxation, national debt, levy on consumption, windfall taxes, direct public funding, re-directing private investment or whatever - we'll all end up paying (and gaining) in the end.

        - Andy.

  • A new electricity market is needed.- A Single Buyer market. Check out the pdf written by a engineer from NZ.

  • To add to the up and coming crisis born out of political stupidity we are going into cold weather with little wind. With sky high energy costs. Could the single buyer market work.

    Maybe. But something needs to change  and quickly too.

  • Funny enough Coal (0.99GW) is producing more energy than Wind today (0.72GW) according to gridwatch.

    The green activist will be going into meltdown! All that awful CO2.

  • Funny enough Coal (0.99GW) is producing more energy than Wind today (0.72GW) according to gridwatch.

    The green activist will be going into meltdown! All that awful CO2.

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