RWE Atlantic Array to gain GBP169m in Windfall Profits

I have worked in management accounts in manufacturing industry for over 25 years. In that time I have learnt that audit controls are imposed to stop the potential for fraud, by eliminating any scope for fraud. In Britain climate change arena, conflicts of interest are huge, but not considered important. This is an example of why truly independent oversight is required.

In July there was ministerial sign-off of a proposed to change the Renewables Obligation (RO) with respect to offshore wind power. Assuming that this proposal is enacted and the Atlantic Array gets the green light, I calculate will give a £169m (US$262m) windfall profit to the scheme in the first ten years of operation.

The numbers behind this are eye-watering.

The revenue from a wind farm is from selling the electricity produced to the grid. This is currently 4.7p per kwh. I will assume that this will remain constant for until 2025. This might be a heroic assumption given that under current policies Britain will be producing far less electricity than demanded, but it is beside the point of this posting. What is relevant is the subsidy from electricity bills. The RO currently gives renewables a subsidy of £41.38 per megawatt hour. This is the rate for onshore wind. However, to encourage offshore wind power, this currently attracts a factor of 2.0 times the standard rate. In 2009 this was planned to reduce to 1.5 times the standard rate from 2014*. The new proposals are to give a more gradual and delayed decrease to 1.9 in 2015/16 and 1.8 in 2016/17. I have assumed that this will continue until the 1.5 level is reached.

In Germany the average output from the wind farms is just 16.3%. However, Britain is somewhat more exposed, especially the Bristol Channel. It is reasonable to assume to that average output will be 25% of capacity. Then I have assumed that RWE will choose to build the maximum proposed capacity of 1390MW. The lower end is 1000MW.

Calculations over a 10 year period are

The difference will mean an extra £168,572,951 windfall for RWE.

There is however a potential flaw in my analysis. If the Renewables Obligation works like the solar panels for houses, then the rate is fixed at the time of application. In other words, a scheme coming on stream in 2015 would now attract 2.0 ROC, instead of 1.5 for every year for 10 years.

If my analysis is correct, the difference will mean an extra £684,633,697 windfall for RWE over a 10 year period. That is $1.07 bn dollars. This from (the largest) of a number of similar projects.