IPPR is wrong about medium-sized wind turbines when it claims a ‘subsidy loophole’ is damaging the confidence in UK clean energy. The problem is not the dishonesty of manufacturers, the mendacity of installers or the gullibility of government. The real issue is the cliff-edge nature of wind FiTs.
If I install a handsome EWT 500 kW turbine in my field today, I get paid 13.34p for each kilowatt hour of electricity it produces. If, instead, I put a 501 kW machine there, I would get 7.24p, only 55% as much. Instead of getting a gross income of about £300,000 for my electricity from a windy site, the return would fall to about £165,000.
Feed-in tariffs (as at February 2015)
Up to 100 kW 16.00 pence
101-500 kW 13.34 pence
501 kW+ 7.24
Unsurprisingly, farmers and wind turbine manufacturers noticed this when the feed in tariffs arrived five years ago. Under 500 kW and you got paid almost twice as much as just over 500 kW. So a larger wind turbine costs more but produces a much lower income.
A phrase I heard a lot at the time was ‘the 500 kW sweet spot’. If you could get planning permission for a 500 kW turbine on a coastal hill top you would get an extraordinarily attractive financial return. At the higher feed in tariff rates then available, payback could be as short as two years.
If my memory is correct, the only problem was that there wasn’t a 500 kW turbine on the market. There were smaller machines at around 300 kW and much larger turbines. The race was on to turn an existing design into one that could exactly hit the sweet spot. The mid-sized Dutch manufacturer EWT was one of the first to market with a variant of its 900 kW turbine with its power capped at 500 kW. And it is now capturing a large fraction of the sales of turbines put on British farms.
Despite what the press is saying today, the 500 kW version isn’t the same as the 900 kW machine and doesn’t typically produce as much power. The cut-in wind speed when the blades start moving is lower and the smaller turbine reaches maximum output at a much lower wind speed. At a wind speed of 10 metres/second (20 miles an hour or so) the bigger machine produces about 20% more output. If you were paid the same price for producing electricity, you might well choose the larger turbine. But you don’t because the subsidy is much, much lower.
IPPR gets rather heated about how wicked this is. But let’s put this in context. The total number of machines that have been tuned down to fit just under the arbitrary 500 kW limit is probably about 100 (source IPPR). The net impact is probably about 30,000 MWh a year of diminished production (what these 100 turbines would have produced if they were rated at the original manufacturer’s specification). This about 0.01% of UK electricity output.
The answer to the problem is not what IPPR proposes, which is to award subsidies based on rotor size. That would introduce another set of incentives to tinker with turbine designs to look for the sweet spot. The right thing to do is to adjust the feed in tariff rates so there isn’t a cliff edge at 500 kW. The sensible structure of rates is one which mirrors the underlying costs of turbine and, importantly, turbine installation. This will trend downwards at quite a steep rate to 200 kw or so, and then drop more slowly as the benefits of increasing scale grow smaller. This is all that need to happen. We can then call an end to the pumped-up panic in the tabloid press about the problem.