THREE Shetland based wind farm projects have been successful in applying for subsidy from the UK Government.
The Viking Energy, Beaw Field and Mossy Hill developments all feature in the government’s latest Contracts for Difference (CfD) auction results.
Viking is already under construction, but the news should in effect pave the way for Peel Energy’s already consented Beaw Field and Mossy Hill wind farms to go ahead.
Chairman of campaign group Sustainable Shetland Frank Hay said the announcement, with the “usual fanfare trumpeting cheap renewables”, will require close scrutiny.
“Cheapest is not always best and wind power comes with many drawbacks, notably the need for backup, which is not taken into account for CfD calculations,” he said. “If wind power is so cheap, why is there a need for subsidy at all? It should not be forgotten that subsidies are ultimately paid for by energy consumers through higher bills.”
CfDs give certainty to project developers to invest in new renewable energy infrastructure by protecting them from volatile wholesale prices.
The fourth round of the scheme, announced this morning (Thursday), has secured almost 11GW of renewable power including through offshore and onshore wind, solar and tidal stream projects.
For Viking Energy, the 15-year contract is for 220MW of its 443MW generating capacity – around half. It has a strike price of £46.39/MWh for the 2026/27 delivery year.
When it comes to Beaw Field in Yell, a contract for 72MW at the same strike price has been awarded.
For Mossy Hill, on the outskirts of Lerwick, the contact is for 48MW, and it also has a strike price of £46.39/MWh.
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The two Peel projects are due to be operational by late 2026, and their construction could take place over a period of 18 to 24 months. They represent a £150 million investment from the company.
All three developments failed to win subsidy in a previous CfD auction in 2019, but Viking Energy developer SSE Renewables decided to press ahead with investing around £580 million in the wind farm anyway to kick start its construction.
SSE Renewables said the wind farm – due to go live in 2024 – will receive its guaranteed strike price, set on 2012 prices but annually indexed for CPI inflation, for the contracted low carbon electricity it will generate for a 15-year period.
It added that securing a CfD for Viking “stabilises the revenue from the project whilst also delivering price security for bill payers”.
“The CFD will provide price stability for part of Viking’s output and supports the business case for the project,” a spokesperson said. “Given the volatility in energy markets, securing a CfD for Viking also delivers price security for bill payers for the period of the CfD.”
SSE Renewables managing director Stephen Wheeler said: “We are delighted that Viking Energy Wind Farm has been successful in securing a 15-year contract in the UK’s fourth and highly competitive CfD allocation round.
“At SSE Renewables we’re taking action to deliver more of the sustainable and secure homegrown energy needed in the UK. Viking will be the most productive onshore wind farm in the UK when it enters operation from 2024, and will play a crucial role in decarbonising energy supply in the Shetland Islands as well as in Scotland.”
Rob Tate, development director for renewables at Peel NRE, said: “This government support is excellent news to help secure the future of cleaner energy generation in Scotland and it moves us closer to the delivery stage of our two wind farms in The Shetlands.
“It also supports the UK’s wider journey towards net zero and is a step in the right direction towards addressing the global energy crisis and rising costs.
“I’m pleased that both of our projects have been recognised and that we’re able to play our part in providing the infrastructure needed to scale up the country’s renewable efforts.
“This result is the culmination of eight years of work and investment from Peel NRE in Shetland. It’s been a huge team effort to get the bids over the line and I’d like to thank everyone for their hard work in putting the best submissions forward.”
The UK Government said a “unique benefit” of the CfD scheme is that when wholesale electricity prices are high, as they have been in recent months, generators pay money back into the scheme to reduce the net costs of the scheme to consumers.
UK business and energy secretary Kwasi Kwarteng said: “Eye-watering gas prices are hitting consumers across Europe.
“The more cheap, clean power we generate within our own borders, the better protected we will be from volatile gas prices that are pushing up bills.
“Thanks to today’s record renewable energy auction, we have secured almost 11GW of clean, home-grown electricity– which would provide as much power as around 6 gas fired power stations.
“These energy projects already have planning permission, now they have a funding contract in place. We’re going to get these projects built as soon as possible to better protect millions of British families from rising costs.”
Under the scheme developers are paid a flat indexed rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’, a measure of the average market price for electricity in the GB market.
Sustainable Shetland’s Hay said it will “come as no surprise to anyone that Viking Energy should be awarded a CfD in the latest round”.
“How very convenient for them, having started to construct the project, to be then awarded one,” he continued.
“They obviously anticipated that this would happen. It would seem that only half the Viking project will qualify for CfD. Quite how this will work in the already complicated CfD scheme is unclear.
“It is sad to see that the industrialisation of Shetland continues and that CfD support for Beaw Field and Mossy Hill wind farms may encourage these projects to move ahead also. The situation that has emerged in the energy markets mean that the strike prices quoted here are far below current market rates.
“It would seem that it will be easy for energy producers to opt out of CfD without penalty and take market prices for their electricity, unless prices fall.”
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