For wind and solar powerplants in UK jurisdictions, a different regime applies.  Investors are offered a guarantee from the Government of both the price, and the amount, of electricity that they will be able to sell.

How do these guarantees work?

Firstly, the amount. The amounts of electricity that wind and solar farms produce are obviously highly dependent on the wind blowing and the sun shining. This, by the way, is a major headache for the grid managers, because this is unpredictable and electricity is always needed and cannot be stored at grid scale. So what the Government has done is insist that Grid managers must take all the electricity that renewable sources produce, whether or not there are cheaper alternatives and regardless of whether that much electricity is actually needed at the grid at the time it is generated. (If the grid literally cannot accept the renewable energy generated, the renewable powerplants turn down or shut off – but still have to be paid as if they were running as hard as possible.)

In effect, the Government has said “we will take all the electricity that you can deliver”.  The loser from this is gas power stations, who are pushed aside by renewable suppliers until calm, dark or cloudy conditions return. Then they are required to replace all the missing electricity. This has the effect of making gas generation much more expensive than it should be, as there has to be a tremendous amount of gas capacity sitting unused for much of the time. Suddenly turning gas plants on and off all the time also increases maintenance costs.

Secondly, the Government guarantees the price of electricity that renewables produce. They don’t do this for gas generators, who have to live with the ‘market price’ of electricity, which is highly variable.  In this latest round (called ‘AR6’), the Government secured new renewables investment at prices which for offshore wind are around 30 per cent higher than the average market prices in 2024.  For floating offshore wind plant, not built on the sea bed, the price the Government has guaranteed is a staggering 200 per cent higher than the market price.  Prices significantly higher than market prices were also awarded to solar and onshore wind projects.

All these extra margins get added to electricity bills. And there’s more.

Significantly, hidden in this auction was already agreed capacity which was allowed by Government to back out of prices agreed in earlier auction rounds and be awarded the much higher prices seen today.

The renewable investors have choices, and they have clearly told the Government that they won’t invest unless the returns are sufficiently high. For the investor, ironically, the risk is not that the market prices are too low (they aren’t at risk from market prices), but that the Government changes its mind about the attractiveness of renewables, and at some point in the future begins to question the enormous subsidies that renewables require.

We have consistently been told that renewables are cheaper than gas generation.  That was briefly true in the Ukraine crisis when Russia closed its gas supply to the West, but is far from true now.  Now, with the power of market flexibility, gas prices have fallen, while UK electricity prices continue to rise.  They will keep on rising if we insist on continuing to subsidise investment in renewables, making the UK increasingly uncompetitive, and hurting consumers.

This is not ‘leading the world’, it’s economic suicide.

Neil Record is Chairman of the Institute of Economic Affairs. He holds an MSc in Economics. He has worked in the Economic Intelligence Department of the Bank of England, and as an economist in industry