Question of the Week: Should subsidies be paid to foreign projects?

Windpower Monthly spoke to EWEA, Taxpayers' Alliance and the Irish Wind Energy Association (IWEA), about whether government subsidies should be paid to wind projects located in other countries in return for cross-border electricity.

Dong's Walney extension was one of five offshore projects to receive an early CfD contract
Dong's Walney extension was one of five offshore projects to receive an early CfD contract

Question: Should government subsidies be paid to foreign projects?

Kenneth Matthews — CEO of the Irish Wind Energy Association (IWEA)

Our climate goals do not stop at our borders and are part of wider EU and global efforts, so rather than unnecessary infringement proceedings for any individual country's failure to meet targets, flexibility can help. In that context I welcome the recent proposal by the [UK] Department for Energy and Climate Change (Decc) on contracts for difference (CfD) for non-UK renewable electricity projects.

The EU is rightly encouraging the use of the co-operation mechanism as countries strive to meet targets using appropriate market incentives to encourage investment and cover national shortfalls. So where the UK may have a need for renewable energy, it should certainly have the option to widen the net in its search for cost-effective options. As such Ireland is technically and economically a very logically proposition in that regard.

With some planned UK offshore projects now looking less likely to proceed, we should seek to deliver the most cost-effective projects first to help lower costs. On a levelised-cost basis, Irish onshore and offshore projects may deliver power at costs that are currently more commercially efficient than some UK offshore Round 3 projects. Sharing renewables resources can be of benefits to both economies, with more economic projects developed lowering the cost of the levy control framework.

Additionally, non-UK correctly planned CfD projects can provide options for grid reinforcement on both networks, further interconnection and reserve sharing benefits that will filter back to all consumers.

Andy Silvester — campaign manager, UK Taxpayers' Alliance

British taxpayers will be understandably angry that their money is being used to subsidise foreign wind farms – particularly as, after the European Court of Justice ruled that the Swedes did not have to subside a farm in Finland, there is no evident reason or legal necessity to do so.

It opens up a whole range of complications; which countries should be subsidised? Which energies should be prioritised? And what guarantees are there that supply will continue if anything changes in light of geopolitical events, not least the ongoing uncertainty around the UK's membership of the European Union?

Simply put, energy investment requires long-term guarantees of return. Sending money abroad increases the potential of that long-term guarantee going up in smoke, regardless of what energy source is chosen.

Of course, there is plenty of opposition to subsidies in general. It's beyond doubt that much renewable energy is only competitive thanks to generous government subsidies, paid for by consumers through higher household energy bills. At a time when the cost of living for hard-pressed families is high, there is a serious discussion to be had about whether subsidising what is currently an inefficient industry is really where taxpayers' money should be going.

Oliver Joy, political affairs division, EWEA

The European Court of Justice reaffirmed a key principle of the Renewable Energy Directive when it decided not to grant Aland Vindkraft — a small wind producer from the Finnish island of Aland — access to the Swedish government support mechanism: member states can limit support for production of renewable energy to national projects.

Although there is no requirement for individual countries to support the production of renewable energy in other EU countries, the commission actively encourages cooperation.

The UK government's announcement that it will offer contracts for difference (CfD) — a complex form of feed-in tariff — to non-national projects can be seen in this light.

Most countries in Europe, struggling with ever-thinner budgets, are looking at how their power systems can come at a lower cost to industry and consumers. While there is nothing wrong with this, governments should not assume that security of supply requires domestic peak capacity to meet every last megawatt hour when facing a case of extreme peak consumption.

By doing this, governments are essentially taking the most expensive route on a low-cost budget.

Therefore, if the UK international CfD improves security of supply, spurs investment in the wind industry and increases interconnectivity, then it can only be a step in the right direction towards a single energy market by using power capacity more cost efficiently across the EU.

The problem comes at regulatory level. The UK government has identified a myriad of challenges posed by a change in the CfD scheme, requiring most policy design aspects of the country's recent electricity market reform to be reviewed. This includes allocation, the supporting frameworks and even the CfD contract itself.

Abrupt changes and "stop-start" policies can blindside investors and reduce visibility, which can significantly increase investment risk. Ultimately, this raises the cost to consumers through risk premiums and a higher cost of capital.

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