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Research article

Modelling the long-term financial benefits of UK investment in wind energy generation

Authors
  • Colm O'Shea (Department of Geography, University College London (UCL), UK and COMAC Capital LLP, UK)
  • Piers Horne (COMAC Capital LLP, UK)
  • Mark Maslin orcid logo (University College London (UCL), UK; The United Nations University, Institute for Water, Environment and Health, Canada)

This is version 1 of this article, this is the latest verison of this preprint.

This article is a preprint and is currently undergoing peer review by UCL Open: Environment.

Abstract

This study presents new evidence of the financial impact of wind generation on the UK energy market, challenging the idea that sustainability, security, and affordability, are always in conflict. From 2010 to 2023, wind power delivered a net benefit of £104.3 billion to UK consumers—£14.2 billion from lower electricity prices and £133.3 billion from reduced natural gas prices, partially offset by £43.2 billion in wind energy subsidies. Our study takes a long-term modelling approach and considers the broader counterfactual of what would happen if the UK had continued to invest in gas instead of wind generation. In this scenario, the result is a significantly increased demand for gas in the regional European market, and therefore higher prices. Unlike previous short-term modelling studies, this approach highlights the longer-term financial benefit that wind has delivered to the UK consumer.

It is clear that wind generators reduce market prices, cannibalising their own revenues, creating value for others while limiting their own profitability. Wind power should be viewed as a public good—like roads or schools—where government support leads to national gains.

The current funding model, where electricity users bear the cost while gas users benefit, raises fairness concerns. Ultimately, wind investment has significantly lowered fossil fuel prices, underscoring the need for strategic, equitable energy policy that aligns with long-term national interests. Our study demonstrates that the energy transition is not a costly environmental subsidy, it is a compelling financial investment.

Keywords: wind energy, wind energy benefits, UK energy, energy security, climate change, energy modelling, financial modelling, net zero, national investment, renewable energy, natural gas prices

Preprint Under Review
License
Creative Commons Attribution 4.0

 Open peer review from David Newbery

Review
Comments on “Modelling the long-term financial benefits of UK investment in wind energy generation”
30/10/25

The paper estimates the net benefit to UK consumers of wind power support – which cost money but reduced gas generation and both reduced consumer prices directly via the merit order effect and indirectly by reducing gas imports and lowering the price of gas – the latter being by far the larger benefit. The idea is sound, the question is how plausible are the size of the impacts. For the merit order effect the amounts are modest and plausible and replicate in a very simple way more sophisticated estimates (e.g. Chyong et al., 2020 and numerous references therein). For gas, the implied elasticity of supply to GB (i.e. net of demand elasticities in the relevant market) seems low – what is needed is a long-run elasticity not the short-run estimate derived from shocks and seasonality (much driven by the cost of storage arbitrage not to mention seasonal variations in demand). I would urge a far more extensive study of the longer-run dynamics of the W European gas market and its price responsiveness, and put the amount of UK gas displaced by wind in the context of the W European supply – how material is it?
A quick calculation shows that total cumulative UK wind output to end 2024 was 762 TWh, now running at about 80 TWh/yr. At a conversion efficiency of 50% (on the high side) this displaces 1,524 TWh gas = 156 bcm. UK gas consumption in 2020 was 515 TWh, so wind has displaced 3 yrs total gas consumption, or at current wind generation rates displacing about 160 TWh, so absent any wind gas consumption might be 30% higher, which is material.
As to the econometrics, the obvious problem is that the price of electricity is determined by the system marginal cost (SMC), which, if interconnectors are constrained, is normally set by the price of CCGTs + the EUA*carbon intensity. If interconnectors are not constrained in any hour, the price may be set by imports if importing, but again the SMC if exporting. So any serious econometrics would identify the marginal source of power and distinguish the cases above. One would expect the SRMC of gas to be flat over a wide range but the price mark-up to be residual demand dependent, and rising quite fast in that. In a cost-benefit analysis costs are relevant, while price-cost margins (above those needed to cover fixed costs) are redistributive between consumers and producers – although the emphasis here is on consumer, not social, benefits.
This problem is recognised by the authors: “In addition, the UK may be particularly badly suited to regression analysis as it has “both high VRE (Variable Renewable Energy) penetration and low explanatory power from VRE” (Halttunen et al., 2020) which is attributed to the observation that “electricity prices correlate with the price of natural gas” as seen in Figure 7.” The flat shape of the CCGT supply curve is also recognised: “The LTMOE is lower because it uses a flexible long-term capacity with a flat long-term marginal cost curve - rather than STMOE, which assumes fixed capacity and rising marginal costs.”
Fig 15 compares UK gas prices with LNG to Japan – but that has both higher transport costs and evidence of market power as the international LNG market is quite fragmented (Ritz, 2014). This is recognised early on: “These regional supply - demand differences lead to varied local gas prices” (p5).
The econometrics is somewhat sparse:

E.Pricet = β0 + β1 Windt + β2 NG.Pricet + ε

This should also include the EUA price, or equivalently, the total cost of gas+CO2 at the very least and refer to more sophisticated studies, such as Chyong et al (2020). Admittedly the equation is largely decorative and estimates from the literature also inform the estimates.
The policy conclusions about the misallocation of costs and benefits is excellent and should be given more prominence up front.

Minor points
It is more helpful when looking at electricity markets to measure the gas price in £/MWhth as on the Continent, and to use consistent units such as MWh, GWh etc..

References
Chyong, C.K., B. Guo, and D. Newbery (2020). The impact of a Carbon Tax on the CO2 emissions reduction of wind. The Energy Journal, 41(1), 1-31. https://doi.org/10.5547/01956574.41.1.cchy
Robert A. Ritz, 2014. Price discrimination and limits to arbitrage: An analysis of global LNG markets, Energy Economics, Volume 45, https://doi.org/10.1016/j.eneco.2014.07.013.

Note:
This review refers to round 1 of peer review.