SOME weeks ago, I received a notification from Companies House that one of Britain’s latest offshore windfarms, Walney Extension, had published its financial accounts for 2019. My interest in the accounts was prompted by the strange contrast between the very high costs of recent windfarms (installation and operating), and the offers by operators of the next generation to supply the grid at prices far below anything that might be expected from analysis of costs.
Walney Extension, comprising 87 turbines 11 miles off Barrow-in-Furness in Cumbria, is typical of the last generation of windfarms, costing £3billion to build – more expensive than average. Little surprise, then, that it needed to agree a guaranteed price of £150/MWh, more than three times market price, to supply the grid. That figure has now been index-linked and adjusted up to £170/MWh. In other words, it sells to the market at £40/MWh, and then receives a subsidy of £130/MWh.
With this very high sales price in mind, I was surprised to read in the 2019 accounts that Walney Extension made an operating loss of £74million on turnover of £235million. Some of that figure was due to a one-off write-down of assets, but the underlying operating result was still deeply in the red. Moreover, it made a big loss last year as well. There is more red ink further down the profit-and-loss account, so that the retained loss for 2019 was £143million.
Scratching my head somewhat, I started plugging the numbers into my database of windfarm costs. I use these figures to generate estimates of the levelised cost – the lowest price that the windfarm will need to charge to give the required return to shareholders.
The figure I came up with for Walney Extension was £154/MWh, although this was with some fairly generous estimates of the cost of capital. Still, it did make me wonder how they were managing to make a loss if they were selling power at £174/MWh. So I decided to check if they were. The Renewable Energy Foundation’s dataset shows that Walney Extension produces around 2.6million or 2.7million MWh each year, and dividing that figure into the turnover of £235million implies an average selling price of just £87/MWh.
Now why would you sell power at £87 when you have a guaranteed price of double that?
According to the accounts, the windfarm sells all of its electricity to two related parties: Orsted Walney Extension Holdings and a company called Anno 2017 Joint Holding.
And here’s where it gets a bit strange. The subsidy payments – amounting to a third of a billion pounds a year – seem to end up in the books of these two entities rather than the books of the windfarm itself. This means that accounting losses are created in the books of the windfarm, with profits in the books of the related parties. I assume that this is a tax avoidance scheme.
But where it gets really strange is when you look at the website of the Low Carbon Contracts Company, the quango responsible for dishing out the subsidies. According to its official register, the contract is with the windfarm.
However, the Low Carbon Contracts Company assures me that there is nothing untoward about this. The rules simply require that each contracted party nominate a bank account into which the subsidy should be paid. If that’s a third-party bank account, that’s their business.
It looks then as if the government has set up the ‘Contracts for Difference’ (subsidies) regime in such a way that not only do operators get vast handouts but they avoid paying tax as well.
There’s nothing illegal about tax avoidance, of course. But the whole thing stinks.