The value of an onshore wind farm

The Scottish and UK Governments will earn more from an onshore wind farm than the developer

Every time a wind turbine rotates, it generates value. It is valued by electricity consumers like us, who use the power generated to wash our clothes, cook our meals and power our cars.

This post is the first of three that covers the link between the finances of an onshore wind farm and the economic impact of the sector. In this post, we look at how the value of the energy produced is distributed throughout the economy and what this means for maximising the economic benefits of the sector.

How is the income of an onshore wind farm distributed?

A 5MW turbine going at full pelt will generate about £100 worth of electricity every 10 minutes. The distribution of costs and gross profits for an onshore wind farm will vary depending on the approach taken to financing the project, the level of grid charges and the wind resource. This distribution is indicative of what a project in Highland might look like.

The largest section of this income will be used to cover the costs of building the wind farm. Onshore wind is infrastructure. As a result, it requires a significant upfront capital investment followed by ongoing operational costs, like other infrastructure sectors in the economy such as telecoms, water and railways. This will include the turbines, the civil engineering and the planning permission. The people who prepare the site, design the project, manufacture and install the turbines all generate economic value.

There will be variation in both construction and operational costs, depending on where projects are. For example, an onshore wind project in Highland will have higher operational costs than projects elsewhere in the UK. This is because the grid connection charges for Highland projects are significantly higher than elsewhere in the UK. The grid connection charges in the UK (TNUoS) are essentially designed depending on how far away from London the electricity is generated. This puts Scottish projects at a disadvantage and projects in Highland are impacted more than most.

Approximately 2% will go to the community if the project has a Community Benefit Fund worth £5,000 per MW, 12% will be paid in taxes and 6% will be profit for the developer.

How does onshore wind compare to other industries?

The Operating Surplus of a company is the income it receives less what it spends on supplies and staff costs. This will include the profits that it makes and the taxes it has to pay.

An onshore wind project will earn between £15 - £20 of Operating Surplus on every £100 of income it receives. (Note that this is not normally how developers assess projects, however, this allows us to compare with other sectors). This will vary depending on factors such as grid charges, the wind resource at the site and the approach the developer has taken to financing the project. This is less than the average for the UK economy, which is £24 of Operating Surplus for every £100 of income. Sectors such as telecommunications, forestry and oil and gas extraction will earn considerably more than this.

Electricity generators like onshore wind farms, make less Operating Surplus per £100 of income than the average of the UK economy

Where does the Operating Surplus go?

The largest share of the operating surplus for onshore wind projects is taxes. This will include corporation tax, business rates and the electricity generator levy. The developer will receive around a third of the surplus as profits and approximately 10% will be allocated to the Community Benefit Fund.

Wider Value

The value of renewable electricity generation is of course greater than the pounds and pence it produces. Renewable energy is crucial;

• to tackle climate change and the potential impacts of continuing to burn fossil fuels for energy;
• to reduce the long term cost of energy for UK consumers and mitigate against global price spikes in gas prices; and
• to enhance our energy security.

It is these benefits, rather than the financial case, that means that both the Scottish and UK Governments have made the decarbonisation of the energy sector and achieving Net Zero core objectives which have cross-party support.