Picking The Public Pocket

Does wind energy represent 'the greatest public subsidy bonanza of modern times'?

by Owen Spottiswoode

This week's surprise announcement from Energy Minister John Hayes, reported in the Daily Mail and the Telegraph, that the Government wouldn't give the green light to any more onshore wind farms certainly caused a stir, with Labour Leader Ed Miliband accusing the Prime Minister of having an'uncertain' energy policy.

Elsewhere the move was more warmly welcomed, with the supposedly high cost of producing wind power a popular target for its detractors. In the Daily Mail, columnist Christopher Booker claimed that Mr Hayes's announcment marked the end of "the greatest public subsidy bonanza of modern times."

So just how large is the taxpayer's subsidy to the wind energy sector, and how does it compare to other public subsidies?

What is a subsidy?

This isn't necessarily easy to pin down. A 2004 report from the Office of Fair Trading (OFT) noted that:

"At the simplest level, any intervention by government that provides assistance to a firm or group of firms is a subsidy. However, this is a very broad definition that would include government actions that would not be expected to affect competition, such as the provision of public education and general infrastructure."

The OFT therefore looks specifically at direct cash grants, tax breaks and loan guarantees given by Government to companies in the private sector.

This isn't too dissimilar to from the Treasury's definition of a subsidy, which is any "levy, direct payment or market support" given by Government to a firm.

How much does the Government give out in subsisies?

According to the Treasury's Public Expenditure statistics, a total of £8.3 billion public money was handed out to private companies in 2011/12:

However this doesn't include the additional capital grants made to private sector firms which came to nearly £6.4 billion in the last financial year. These include interventions made by government in the financial services sector, but for our purposes here they haven't been treated as subsidies.

The above table also excludes the sums that UK farmers receive through the Common Agricultural Policy (CAP), as this subsidy is administered by the European Union. The UK received about €3.3 billion in direct agricultural aid in 2010.

By how much do wind energy producers benefit?

Government subsidies to renewable energy producers fall into two catefories: 'Feed-in Tariffs' and support given under the 'Renewables Obligation'.

As far as wind power is concerned, only relatively small amounts of money are paid out in subsidy through Feed-in Tariffs. In 2011-12, just £7 million of public money was given in subsidies through this mechanism (although it's worth noting that for other forms of renewable energy it is much larger - solar producers received a total of £160 million through Feed-in Tariffs).

However the Government does contribute much more towards supporting wind energy through the Renewables Obligation - a programme of 20-year grants awarded by the Department for Energy and Climate Change (DECC).

According to the Energy Minister Greg Barker, the Government paid out over £750 million to wind energy producers through the Renewables Obligation (although overall the scheme is worth up to £2 billion, according to the DECC website):

How does this compare to other industries?

Unfortunately, the Government doesn't provide a neat breakdown of the relative level of subsidy offered to different sectors.

However information is available from various sources on subsidies given to local bus service providers, farmers and train operating companies which can help put these figures into context.

As we've seen, the agricultural subsidies on offer are worth considerably more in total than those given to wind energy producers, although the UK Government is not solely responsible for funding these.

By contrast, the sums offered to bus operators are much smaller, weighing in below the £2.5 million mark.

However as we have seen before, the subsidies given by Government to train operating companies are much larger. In 2009/10, these were worth £4 billion.

So does this mean that we should take the claim that the wind energy sector has seen the "greatest public subsidy bonanza of modern times" with a pinch of salt?

Well, while railway subsidies might be worth more in nominal terms, there is still a question mark over whether or not they provide proportionally more support to the industry than wind subsidies do.

Subsidies represent about 35% of total revenue for train operating companies, but as far as we're aware similar figures on the total size of the UK wind energy market aren't available that would allow us to make a comparison.

So while wind energy producers have certainly been one of the larger beneficiaries of state subsidies in recent years, the jury is still out on whether or not we can say that they have absolutely benefited the most.