The 900MW Moray East Wind farm in North East Scotland has come under scrutiny for using loopholes to rake in £647 million.
Think tank Renewable Energy Foundation (REF) noted that the wind farm netted over £1 billion in revenue since it began generating in June 2021 and up to July 2023. This is despite originally being awarded Contracts for Difference (CfDs) in Allocation Round 2 in November 2017 with a guaranteed but capped price of £57.50/MWh in 2012 prices.
Moray East Offshore Wind farm has been developed as a joint venture owned by Ocean Winds (56.6%) Diamond Green Limited (33.4%) and CTG (10%).
Despite the CfD strike price, the project had a “strikingly high average” price of around £234 per megawatt hour generated. This is well in excess of the average price of £168 per megawatt received by gas-generators in the same period, REF said.
REF said: “Moray East has not implemented its CfD, preferring to take the much higher market prices prevailing in the wake of the invasion of Ukraine. As a result of this decision Moray East offshore wind farm received £812 million in electricity sales since coming online in summer 2021.”
By not implementing its CfD, the REF has estimated that the consumer overpaid by approximately £647 million.
CfD loophole leads to excessive profits
As noted earlier in this article, the primary reason for the Moray East Wind farm receiving excessive profits is due to a loophole in the design of the CfD scheme.
Under Allocation Round 2, The UK government awarded Moray East a 15-year Feed-in tariff with CfD on 11 September 2017. This was at a capped price of £57.50/MWh.
REF stated that the terms of the CfD scheme, as devised by the government, allowed developers to defer the start date of the contract, which Moray East did. In the period up to the end of July 2023, REF said that they received £812 million from selling electricity in the wholesale market.
Had the wind farm been obliged to take up the CfD promptly, they would have received only £350 million because the price would be capped at the level of the strike price. Moray East’s decision to exploit the legal loophole and defer implementing its contract, cost the consumer £462 million, REF noted.
However, the project also tapped into a “second very profitable source of income”, REF said. This is constraint payments.
REF said: “Under the subsidy system that preceded the CfD arrangement, wind farms received a subsidy payment on top of the prevailing wholesale price, but they would lose this subsidy if constrained off the system. In the view of some analysts, including ourselves, this loss is a foreseeable market risk, and no compensation should be offered, but the Electricity System Operator (ESO), with the approval of the regulator, has in fact thus far paid the wind farms compensation to cover this lost subsidy.”
Under this, Moray East charged £101 million to reduce its output. As a result, the wind farm actually earned more per MWh when not generating than when generating and selling normally.
This could be regarded as an offence too. REF stated: “This appears to us to contravene the principle set out in the Transmission Constraints Licence Conditions (TCLC) that a generator should not profit from a grid constraint, and to require investigation by the regulator Ofgem.
“If Moray East had been operating under the CfD and received the strike price for the constrained electricity output, they would have received £112 million. In fact, by deferring their CfD, taking the higher wholesale prices and charging to reduce output during periods of constraint, Moray East made £296 million, some £184 million more than reasonably could have been charged under the CfD regime.”
