Adam Bruce is a former Conservative parliamentary candidate. He was UK CEO of the international wind energy company, Airtricity, which was sold in 2008 for £1.6bn. He then joined the start-up Mainstream Renewable Power. Since its launch Mainstream has raised over £180m to invest in developing wind and solar plant in eight countries around the world. It is the largest independent developer of offshore wind in the UK.
As a Conservative and a developer of wind and solar farms, I wish I could sell my goods in an open and transparent UK electricity market. In this market, my fossil and nuclear competitors would bear the full cost of their environmental impact, would receive no tax breaks to prospect for their resource and would be required to pay to insure and to decommission their plant. In this market, the electricity price reduction effect of my technology would be passed on in full to the consumer. But I can’t sell in such a market, because it doesn’t exist. I have to sell into the market that exists in the here and now.
Most global energy markets are riddled with subsidies or “policy interventions”, both implicit and explicit. The UK is no exception. The Government is making tentative moves to prise open the UK electricity market and let in the sunlight of transparency and liquidity. Sometimes I think that the Government should abandon its attempt to shoe-horn an open market into the Lawsonian oligopoly that survives from privatisation in the 1980s and just join the Nordpool, but I digress.
I want to discuss a simple issue that seems to exercise a number of Conservative MPs. It is the notion that wind energy puts up bills. If only we weren’t being forced to build all these wind farms, runs the argument, we could have cheaper bills and more economic growth. I will show that we can have wind farms and economic growth, for the simple fact is that wind energy lowers the price of electricity - and in a country like the UK with a massive wind resource, it provides a very significant contribution to GDP and balance of payments.
Wind energy lowers the price of electricity. Prof Harry Markowitz, the Nobel Prize winning Chicago school economist was one of the first to describe modern portfolio theory. The theory, simply put, states that to deliver the best possible return from an investment portfolio you need a mix of high and low risk assets. Apply Markowitz’s theory to electricity markets and you observe the same result – where an optimal mix of risky (gas and coal plant with all that price volatility) and non-risky (free fuel wind and solar plant) delivers the best possible risk adjusted return – which in this case is a lower electricity price than a comparable market with no wind or solar plant.