On 8 January, the Crown Estate, the body which manages Britain's sovereign lands, announced the names of the companies who have successfully bid for the right to build giant offshore wind farms in nine zones established around the UK. The farms will be large enough to generate 32.2 gigawatts (GW) of electricity per year and are intended to meet to meet 25 per cent of the country's electricity needs by 2020.

This is a substantial development for offshore wind power, which, according to Reuters, currently has only 1.5 GW of capacity installed globally. It also represents a significant investment in the UK economy. Prime Minister Gordon Brown, quoting statistics from The Carbon Trust, stated that it could create an industry worth £75 billion and support 70,000 jobs.

A number of environmental advocacy organizations welcomed the announcement, including Greenpeace UK, one of whose spokespeople talked with Subsidy Watch. "We think this is a massive shot in the arm for clean domestic energy production in Britain. It's definitely the direction we want to go in."

"In a context where fossil-fuel demand is set to continue to grow globally, and we expect fossil-fuel energy prices to continue to increase, it is very sensible to invest in renewable, domestic sources - on economic grounds, energy-security grounds and a number of other grounds as well."

But numerous articles in major British newspapers have objected to the costs that may need to be borne by electricity consumers in order to fund these new investments, through a support mechanism called the Renewables Obligation (RO).

The RO is a complex support mechanism that has existed since 2002 and guarantees support through to 2027. It defines actors in the electricity market as generators or suppliers, and transfers wealth to companies producing electricity from renewable energy via two related but distinct mechanisms.

First, electricity suppliers are legally obliged to ensure that a set percentage of the electricity they have sold is generated by renewable-energy technologies. This percentage increases year-on-year: 6.7 per cent in 2006/7, 7.9 per cent in 2007/8 and 9.1 per cent in 2008/9. This is more expensive than the market price they could be paying for electricity generated by coal, gas or nuclear power plants, creating a stream of revenue directed towards renewables producers by the government.

On top of this, at the end of each financial year, suppliers must possess as many Renewables Obligation Certificates (ROCs) as the number of megawatt hours (MWh) of renewables-generated electricity they have been legally obliged to sell. A fine is paid for each missing certificate, and the money raised is distributed among all the suppliers who have met the requirements.

But the only people with ROCs are generators, each of whom receives a certain number for each MWh of electricity they sell to the grid (between 0.25 and 2, depending on the renewable-energy technology). And because the ROC has a market value - based on the fine that can be avoided and recycled, and the availability of certificates - they are sold to suppliers as a separate product, for a price in addition to the cost of electricity. This second revenue stream represents another subsidy for renewable-energy generators, as it results from an artificial market in certificates established by the government.

At the end of the day, it is consumers who pay the price for the support, through increased electricity bills.

UK charity The Renewable Energy Foundation (REF) estimates that the Renewables Obligation is worth a substantial amount to generators, typically making up 50 to 60 per cent of their income. This breaks down to around £40-£50 per MWh due to the requirement that suppliers buy a certain percentage of their electricity, and another £50 per MWh due to the price of the ROC. In the case of offshore wind, which entitles generators to two ROCs per MWh if they are operational by 2014, the second subsidy stream is currently worth around £100 per MWh. This extra support to offshore wind may be extended past 2014 following a review of the scheme that is expected to take place this year.
 
The REF also argues that the government's subsidies for renewables and the UK's existing energy infrastructure do not add up: the large-scale fluctuations in supply created by wind energy could not be supported by the current grid system, so that would also need to be overhauled. If such complications are taken into account, the REF estimates that by 2020 the annual subsidy to make offshore wind work would be around £10 billion a year.

"We feel the cost to the consumer is unduly high, and particularly so at this terrible time," said Renewable Energy Foundation Director of Policy and Research John Constable, "with the UK barely crawling out of recession - perhaps not actually crawling out of a recession. To put a barnacle of this size on the hull of the UK economy for very little in return is simply not acceptable."

And offshore wind is not the only contender for energy subsidies: in addition to other renewable technologies under the RO, and the problems facing the national grid, there is also a levy on electricity bills to fund four carbon-capture and sequestration (CCS) demonstration plants (raising £9.5 billion over 15 years, as reported in Subsidy Watch Issue 34), plans to build a new fleet of nuclear power plants (which skeptics doubt could be accomplished without state aid), and recently announced feed-in tariffs to support the micro-generation of electricity and heating using renewable energy.

Official sources have also noted their concern. British electricity and gas market regulator Ofgem confirmed for Subsidy Watch that a report to be published later this month will conclude that UK wind subsidies cost electricity consumers a little over £1 billion for the first time in 2009. Ofgem has previously been critical of the Renewables Obligation in terms of efficiency and certainty of returns to investors, stating in a 2008 government consultation that constraints on the supply of renewable electricity generation had "result[ed] in excessive profits on average for renewable generators and even higher profits when wholesale prices are high".

According to their calculations, assuming an offshore wind capacity of 12 GW by 2020 - just a third of the amount now proposed - and on the grounds that the UK will meet its 2020 target to generate 29 per cent of its electricity from renewables, the total cost of the RO would be around £3 billion a year. The Chief Executive of Ofgem has said that, by 2020, around 30 per cent of UK electricity bills are expected to be made up of government intervention.

As a consequence of these developments, an increasing number of people are asking the question: how much is reasonable? This is a difficult area of policy debate, as none of the participants oppose renewable energy per se, but it is easy for messages of fiscal responsibility to be diluted into simple ‘for' or ‘against' perspectives.

The Renewable Energy Foundation contends that UK subsidies are among the most generous in Europe, and unnecessarily so. They take the stance that Renewables Obligation has retarded research and development and efficiency increases by driving investment towards currently available technology, all the while cutting off the market from traditional energy generators who will nonetheless be expected to provide the base load of electricity beneath fluctuating renewable supply. And given the intermittency problems of renewables, they argue that the need for conventional generation will not change. "It's very expensive for the consumer and it's not actually encouraging development of renewable energy technologies or innovation in the sector. It's simply creating high profits for speculative investors," stated Mr. Constable.

In turn, Greenpeace UK emphasizes Ofgem estimates that as much as £200 billion might be required between now and 2020 alone to get the UK on the right track - and someone has to pay. "A large proportion of Britain's power stations, around a third, are set to close," stated their spokesperson. "There has to be a significant investment in the energy generation system and the question is: what's the most sustainable way to achieve that, both economically and ecologically? As Ofgem themselves conclude, a low-carbon path is more financially sustainable as we come out of the recession than a high-carbon path."

For the moment, it seems there are no clear-cut answers in sight, though it is likely that consumers will eventually bring some weight to bear on the politicians who back the scheme. Until then, as Bob Dylan so aptly put it, ‘the answer, my friend, is blowing in the wind'.