New North Sea windfarms to get multi-national connections...

I'm wondering how the subsidy and support arrangements will work?

Currently in GB, windfarms bid into the Contract for Difference (CfD) auctions to secure an inflation-linked, fixed price contract for their generation, paid for by GB consumers, on the basis that all the power is flowing into GB, benefitting GB consumers.

Of course if that wind farm is now connected to two or more countries, with the power potentially flowing to different countries, varying continuously depending on wholesale prices, that's a much more complex question of how to determine where the power should flow, how that power should be valued and how the subsidy costs should be apportioned between the different countries and their consumers.

CFDs are a long term way of price fixing to get around the unpredictable prices you get at an auction.

Imagine a coffee grower and a coffee buyer at an auction. The grower is nervous because they have no idea how much they are going to get paid per sack. The buyer is also nervous because they can't keep changing the price to their retail customers. 

So before the auction starts, they get together and agree a price between themselves. If the auction price turns out to be less than that agreement, the buyer will bung the seller some extra money to make up for it. If the price is higher, the seller will refund the extra to the buyer.

To be of any use, this needs to be a long term agreement between the two parties. 

This is one reason why the energy market in the UK is completely broken. We pretend that there's a half hourly auction for the wholesale price of electricity. But it's actually all been fixed before the auction ever happens.

The CfD offers more to the generator than your analogy.  The price isn't just agreed before the auction, it is agreed before the coffee grower even starts growing the coffee.  The only risk the coffee grower takes is their ability to grow coffee - i.e. plant seeds, maintain the plants and the weather, just as a CfD means that the only risks a wind generator takes are their ability to build a wind farm, maintain it and (not unlike coffee!) the weather.

Note that the support via CfDs is in addition to the support given by the market rules which effectively mean that wind and solar are purchased in preference to any other source.

Wind and solar cannot meaningfully take part in the traditional market where there are long term deals between generators and suppliers because they cannot guarantee to supply and so they are forced to sell at spot prices.

Also in many cases, it's the government that has negotiated the price, but the consumer is paying it. 

Just to add to the comments.

Periodically (typically annually) the UK Gov runs a CfD auction, or more specifically several auctions segregated by technology type, with renewables generators bidding their projects in to the auction to secure a long term (15 years, now 20 years for off-shore wind) agreement which guarantees them, in effect, a fixed price for the power they generate, the price being inflation linked so remaining constant in real terms.

The generators once they've built the asset, sell the power into the power markets (or via other routes), currently I believe this is through the day-ahead hourly auctions (i.e £/MWh price for each hour in the day) with the auction prices serving as the reference price. If the reference price is above the CfD agreement price (i.e. generator sells the power for more than the agreement price) then the generator pays that excess money into the CfD scheme, if the reference price is below the CfD price, then the generator gets a top-up to bring them upto the CfD agreement price, with that money coming from the CfD scheme.

Behind all of this is the CfD scheme admin, which is then managing all of these agreements, receiving payments from and making payments to the various renewables generators, with the various CfD contracts across the different auction years, different CfD prices etc. When all of those payments are totaled up, there's either a surplus (like during the brief period of the gas price spike some years back), or for most of the time there's a deficit, and that deficit is funded by a levy (CfD levy), a £/MWh charge on all electricity consumed, this levy is charged to electricity suppliers who recover it from electricity consumers through their bills, forming part of the running charge (p/kWh).

You can see the CfD scheme costs in the link below, before CfDs there were other subsidy schemes like Renewable Obligation Certificates (ROCs) and Feed in tariffs (FiTs) which have their own levies.

www.lowcarboncontracts.uk/.../

If only! I very much doubt the wind farm developers will be willing to build these projects at their own risk, selling into the power markets and receiving market prices. It would probably be safe to assume that they will be expecting countries (i.e. consumers) to provide them with guaranteed power prices.

"Inverkip": The Inverkip power station (so the story goes) was built as a 'commercial' plant that be able to generate into an electricity market. However, it was said to have never generated a watt of commercial power in a market sense.

It's chimney (tall, slender, white) did provide a great navigation landmark for the Clyde sailing community.

It )Inverkip) was mentioned often at local IEE Scotland South West committee meetings (90s-00s ..) when discussing investments, security of supply and black-starts [the things that worry power engineers in side-discussions at such meetings].

All investments had to be 'fully funded' one way or another as they had a proper 'white elephant' on the doorstep. No doubt a lot of the story is apocryphal but with a seam of truth running through it. Major infrastructure is always effectively government investment.

One of the conceptual difficulties is that any historic (aka 'traditional') market method that 'encourages' CO2 emissions is no longer acceptable, except as a truly last resort. There are quite a lot of poor studies that (e.g. looking at 100% hydro storage) make that category error. 

Philip Oakley said:

"Inverkip": The Inverkip power station (so the story goes) was built as a 'commercial' plant that be able to generate into an electricity market. However, it was said to have never generated a watt of commercial power in a market sense.

Before my time, but my understanding is that the CEGB and SSEB oil-fired fleet were planned and largely built before the oil crisis struck, planned to run at high-ish load factors but the oil crisis pushed up heavy fuel oil prices, making them very expensive to run, so limiting them more to peaking operation because of the cost. I understand they ran quite a lot during the miner strikes, which illustrates that there's a lot to be said for having some diversity in fuel types and supply. 

There were quite a few - Littlebrook D, Ince B, Fawley, Inverkip, Grain A, Pembroke A. 

The fundamental issue is that the electricity supply system is, as a whole, a system, whilst economically and politically it is treated as a set of many disparate parts.  That means that wind generators do not pay the costs of having dispatchable plant available to cover for when nature doesn't provide or the cost of ensuring the grid has sufficient inertia to accommodate their low inertia generation.  Nor do wind generators have to worry about the fact that that dispatchable plant is now often designed to run intermittently which in turn means that those plants are often less efficient .  The ultimate example of that is the increase in big OCGTs in the UK.  Unless we want to live in a country where power is only available at the flick of a switch if the wind is blowing (despite the governments best efforts to lead us that way), then all of this hides the true economics of different energy sources.

Note that I'm deliberately not offering a view of whether wind is a good choice.  The economics are complex and sufficiently opaque that the man in the street stands no chance of having an informed view - that tends to lead to poor government choices as well.

I dare say that you are correct. How disappointing!

I dare say that you are correct. How disappointing!