Windmills helping to lower the energy bill

Our Minister of Energy has sent this promising tweet out into the world this tweet (translated from Dutch):

Windmills help to lower our energy bill.

Due to high energy prices, wind farms need 177 million less support. Let’s use that straightaway to reduce energy bills.

Here it is in its full glory:

This seem very wonderful news at first glance. Energy prices skyrocket, so if windmills could lower the energy bill, then that is a much welcomed proposition. However, looking deeper into this matter reveals that the news is way less cheering than it is presented.

The first thing that caught my eye is that those windmills need less support. That makes a couple things clear:

1. Windmills still need support to make economic sense
2. Even in times of very high prices (where more money is flowing to wind turbine operators for the energy they produce), they still need support.

The second point raises the question: how much support windmills still get after €177 million got creamed off? Answer at the end of this post.

The first point seems contradictory to the general claim that solar and wind are the cheapest technologies for generating electricity. Even our Minister of Energy herself made that claim, for example here and here. That claim obviously doesn’t add up. If wind (and solar) are really the cheapest, then why on earth would they need support in order to make economic sense in the first place?

Granted, our Minister more often made the weasel claim that solar and wind are the only technologies that are “getting cheaper”. That is much more accurate than that they are the “cheapest”, but it is pretty meaningless. It just means that the cost trend is decreasing. It doesn’t tell how high that cost currently is or how low it will end up in the future. It is perfectly possible that a technology that is currently “getting cheaper” is (much) more expensive than other technologies and might even be in need of support. It also doesn’t mean that the future cost will get as low or lower than the cost of current technologies. Also, said cost is likely only the cost of the hardware, excluding high costs such as the need for backup strategies, a cost inherent to its intermittency. The more elements one excludes from a cost analysis, the “cheaper” it will get.

Not only solar and wind will need support, we are now in the perverse situation that also dispatchable power sources are in need of support too. Our Minister of Energy recently started giving support to gas fired power plants. The reason is not hard to understand. Solar and wind are intermittent power sources and the gas fired power plants will generate electricity when there is no(t much) solar and/or wind. Individual gas-fired power plants will not work all the time and may be idle/offline for longer periods, therefor they may not make economic sense anymore and that is where the need for support comes in.

This means that two parallel infrastructures will have to be build/maintain/operate and both will be in need for support. That is not a good basis to generate cheap electricity and there are other costs like for example the need of strengthening the grid (to cope with the increasing intermittency). Taking all this into account and it becomes clear that these are unlikely to lead to a cheapening of our energy system. On the contrary.

But then how does our Minister of Energy envisions windmills helping to lower our energy bill? Our Government proposed (in the meanwhile also approved) support measures for energy users. Price tag of all these measures is €1.118 billion and will pay for extended support for social tariffs, a temporary lowering of the VAT rate on electricity and an energy check. Part of this €1.118 billion will be compensated by some extra revenues:

• Extra VAT revenue due to the high energy prices: €521.2 million (46.6%)
• Less support for offshore windmills: €177 million (15.8%)
• Extra VAT revenue from fuel oil: €82.3 million (7.4%)
• Nuclear tax contribution: €32 million (2.9%).

Less support for offshore windmills contributes for almost 16% to the one-time lowering of the energy bill. Offshore windmills receive a total of €812 million support per year, so €177 million is almost 20% of that. This means that windmills still need to keep roughly 80% of their support in order to make sense economically.

Concluding, do our (offshore) windmills help to lower our energy bill? Trivially speaking, yes. The forgone support will contribute for almost 16% to one-time, drop-of-water-on-a-hot-stone measures.

That is however only one side of the story. Although windmills are “getting cheaper”, the cost of intermittent power integration into the grid is still high and that will add to the energy cost. This addition is not just a one-time event, but continues as long as the integration cost stays high.

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