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The Difficulty of Making Money from Wind Generated Electricity

Although he has not recently described  Scotland as “the Saudi Arabia of renewables”, Mr Salmond and other supporters of his wind energy policies are still claiming  that it is possible for us make money selling renewable energy to the rest of the world, as Saudi Arabia does with its oil.

Any comparison with Saudi Arabia is self evidently silly. That country produces about 10 million barrels of oil per day. In energy terms this means that their energy output is at a rate equivalent to about 25kw per head of population. Meeting the SNP’s target of “100% electricity from renewables” would require an installed wind capacity of about 13.5GW, effectively 3.7GW because of wind variability,  equivalent to about 0.7kW per head.

More significant than scale, however, is the fundamental difference between oil or gas and wind generated electricity. To sell something profitably, it must be possible to deliver it to customers when and where they require it.

Once an oil or gas well has started operating production can be increased or decreased to meet changes in demand.  Oil and gas are conveniently transported across continents in pipelines, and supertankers can carry up to half a million tonnes.  Oil can be easily stored until required - the US keeps a strategic petroleum reserve of about 700 million barrels.

In contrast, wind generated electricity is only available when the wind is blowing.

It is expensive to transport; the controversial Beauly-Denny link will have a small fraction of the energy carrying capacity of a supertanker, at incidentally about four times the price.  Electricity is also extremely difficult and expensive to store.  The only practical means of storing large quantities is by pumped storage, for which there are four sites in the UK with a combined capacity equivalent to just 18,000 barrels of oil.

It is crucial to understand just who actually makes money from oil and how do they do it.  There are two ways in which a country can make money from such a natural resource. In principle, the most profitable should be to set up its own oil company. This is what Norway has done, giving it a GDP which is the highest for any “real economy” country in Europe.  Alternatively, governments can sell licences to private companies and charge them taxes or royalties on what they extract. This is what the UK has done with North Sea oil.

In terms of electricity, the UK has sold off its state-owned generators and so would have to adopt the licence and tax model to profit from renewable electricity. So has it auctioned licences to build wind farms and charged the companies royalties?

Quite on the contrary - the consumer is paying subsidies to renewable energy operators through Feed in Tariffs and Renewable Obligation Certificates!

It is not at all clear than a country, as opposed to company, can make money out of electricity unless the state owns the electricity company.  While a number of countries are successful exporters of electricity, they all have particular characteristics which do not apply to Scotland.

For a start, their electricity is cheap to produce; it is usually hydro, but in the case of France it is nuclear. French nuclear reactors have been much cheaper than those built in the UK and France has the chepest electricity in Europe. UK renewable electricity is guaranteed a price at least twice the current wholesale market rate. If overseas customers do not choose to pay this premium, and it’s hard to see why the would, then our electricity exports would in effect have to be subsidised by the taxpayer.

Then their generation tends to be a controllable resource. Hydro is the most flexible form of generation and so can be sold when export demand is high attracting a high price. French nuclear is less flexible, but unlike wind it is controllable. France also has substantial hydro capacity.

Importantly, they also tend to have a choice of customers. Norway sells its cheaply produced hydro to Sweden, Denmark and Germany, France to Germany, Benelux and the UK.

None of these conditions apply to Scotland. Our wind generated surplus will be expensive, uncontrollable, saleable only to England, and any profits will go to private companies, mostly owned by German and Spanish shareholders or the French government.

Denmark, with more than 20% of its capacity in wind, has the most expensive electricity in Europe.  At  times of surplus wind it is sold at the bottom of the market. to Germany, whose own wind generation will be peaking as well, Sweden, which has plenty nuclear and hydro capacity of its own, and Norway. On the other hand when the wind is not blowing and Denmark’s demand is high, they must buy in electricity at a premium price.

Norway is a major electricity exporter, having several times as much hydro capacity as it actually needs. It uses this for energy intensive industries such as aluminium smelting. Norway is happy to obtain nearly free extra power at the Danish taxpayer and consumer's expense. This also makes a nonsense of the idea that we might build a link to Norway to sell them electricity at a profit.

The other great hope of renewable energy enthusiasts is that Scotland can build an industry to support wind power generation and sell expertise to the rest of the world. Alas, we are about twenty years too late to cash in on onshore wind power. That market is dominated by manufacturers in Germany, Denmark and the US. The billions which Scotland has “invested” in wind turbines have mostly gone to these countries. What is spent locally is the relatively small proportion of the total cost in low-tech engineering and construction.

But what about the forthcoming boom in “marine energy” where we can hope to be leaders in the field?  Marine energy, in the form of offshore wind turbines, is now almost as well established a technology as onshore wind. And it is dominated by the same countries and companies as onshore. All the  existing offshore wind is in a relatively benign environment like the southern North Sea. There is no particular difficulty in putting turbines in such locations (though there appear to be problems in maintenance) and there are plenty of suitable sites available, such as the Baltic and the Mediterranean.

It would be quite another matter to put turbines in a more demanding environment such as exists off most coasts of Scotland. In fact, no one has yet done this. Indeed, two companies, SSE and Olsen have recently pulled out of major offshore projects. But even if we do manage to build a major wind power facility in deep and stormy waters, who else is going to want to do the same when there are less difficult sites? 

The SNP’s regular boast that Scotland has so much of Europe’s marine energy  potential is double edged – it also means that Scotland is itself most of the market for the relevant technology, and in the case of the most challenging and expensive, perhaps the only market.