Wind power rises in the UK, but at what cost to taxpayers?

Munich Re continued its campaign to invest 2.5 billion euros (£1.96 billion) in renewable energy assets with the acquisition on Monday of three British wind farms. Individual investors however might wonder whether wind power is a welcome breeze, or just full of hot air.

The German reinsurer bought onshore wind farms located at Tir Mostyn in North Wales, Scout Moor near Manchester and Lincolnshire's Bagmoor, which together create a combined capacity of 102 megawatts. Terms have not been disclosed, but were reported by Bloomberg to push Munich Re's renewable energy investments past 600 million euros (£472 million) since last year.

The deal was concluded between Munich Re's MEAG Munich Ergo Asset Management arm and private equity firm HgCapital, which manages Europe's largest renewable energy infrastructure fund.

Tom Murley, head of HgCapital Renewable Power Partners, told Environmental Finance: "Munich Re's acquisition is in line with our investment strategy of building utility-scale platforms of high quality power generation assets with strong operating track records to create attractive assets for institutional investors seeking long-term returns".

Subsidies encourage investment

MEAG views Britain as "an attractive venue for investments in renewable energies because of its stable regulatory environment and the favourable wind conditions there", according to sustainable thinking website Business Green.

The regulatory environment is designed to help the UK meet two difficult environmental energy targets: to cut carbon dioxide 80% by 2050 and to generate 15% of energy from renewable sources by 2020.

The Munich Re deal comes hot on the heels of Government confirmation that the subsidy for onshore wind energy generation will be cut by 10%. This compares to more swingeing cuts of up to 25% demanded by the Treasury, according to the BBC.

Following the subsidy announcement, the BBC also reported that wind farm company RES, which generates about 10% of the UK's onshore wind energy, was now more confident about pursuing UK projects worth £1.7 billion.

Gordon MacDougall from RES UK said: "The timescales associated with planning and developing much-needed infrastructure projects such as wind farms require stable, long-term policies to ensure investor confidence and engagement.

Householders could be hit hard

Yet the UK approach to wind farms remains painfully expensive for UK taxpayers, adding more than £300 a year to family electricity bills according to a report published last week by the Global Warming Policy Foundation.

The report by Professor Gordon Hughes claims that meeting Government targets for wind energy would push up average electricity bills up by as much as 58% by 2020, at a cost of £124 billion.

Professor Hughes said: "Unless the current Government scales back its commitment to wind power very substantially, its policy will be worse than a mistake, it will be a blunder.

"The average household electricity bill would increase from £528 per year at 2010 prices to a range from £730 to £840 in 2020 under the Mixed Wind scenario."

Impact of subsidies in the US

Over in the US, the wind industry is also campaigning hard to maintain subsidies, arguing that more clean power and thousands of US jobs could be at stake if Congress does not extend the Production Tax Credit set to expire at the end of 2012. This federal tax break offers 2.1 cents per kilowatt hour for electricity from renewable sources such as wind turbines.

Currently, the US's total wind output totals 50 gigawatts, equivalent to the output of 11 nuclear power plants, according to the American Wind Energy Association, a trade group representing manufacturers and developers.

Should the US subsidy be removed in 2013, Denmark company Vestas Wind Systems calculates the US turbine market could fall by up to 80%, as reported in the Wall Street Journal's Market Watch blog.

Impact for investors

The UK might be the windiest place in Europe, but that still doesn't make wind power the most attractive area for investment in renewable energy.

Ketan Patel, senior investment analyst at Ecclesiastical Investment said: "Windpower involves well-documented risks, including the need for standby power when there is not enough wind, and the need to turn off turbines if it is too windy, aside from any environmental or noise concerns".

Patel pointed out that like solar energy, wind power is expensive and highly dependent on government subsidies, which are not sustainable.

He said: "If the UK has an extended downturn, at what point will the Government turn round and say the wind power industry needs to stand on its own two feet without subsidies?

"By opting for nuclear and wind power, the Government has chosen two energy sources that are massively reliant on the taxpayer.

"We don't think it's sensible to reply on one single energy source, when they will all have a part to play."