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Consumers picking up bill for “poorly conceived” renewable energy contracts

Offshore Wind
Offshore Wind

Consumers have been left to pick up the bill for “poorly conceived and managed” contracts worth £16.6billion for renewable energy, MPs have warned.

Contracts for eight renewable energy projects were awarded early without competition to avoid delays in investment as the Government brought in the new “contracts for difference” subsidies scheme.

The contracts for difference guarantee an agreed “strike price” for electricity generated by low-carbon energy, with developers now set to bid for the subsidy contracts in annual auctions.

But the Public Accounts Committee (PAC) said the Department of Energy (Decc) had failed to adequately secure best value for consumers by awarding five offshore wind projects and three biomass schemes their contracts early without competition.

Decc’s own economic case shows no clear benefit from awarding the contracts early, a report from the influential parliamentary committee said.

The department had no detailed knowledge and understanding of developers’ costs and estimates and failed to protect consumers’ interests in the terms of the contracts, the committee said.

Officials failed to challenge claims by developers that schemes would not come forward unless consumers shouldered the risk of rising inflation, leading to strike prices linked to CPI so that if inflation rises, consumers foot the bill with higher energy costs.

The MPs also criticised Decc’s decision not to include a “claw-back” clause that would ensure consumers shared in any excessive profits made by projects, and its failure to challenge developers’ claims that such a clause would put off investors.

It was also not clear if all the early contracts were needed to meet targets to boost renewables by 2020, as significant renewable capacity was already in construction, seeking planning permission or awaiting construction, the PAC report said.

And the move meant that 58% of the budget for renewables under the transitional arrangements had been used, constraining the amount available for competitive contracts and making it hard to test the market and secure best value for consumers.

PAC chairwoman Margaret Hodge said: “By awarding contracts worth up to £16.6billion to eight renewable electricity generation projects without price competition, the Department of Energy and Climate Change failed to adequately secure best value for consumers.

“Yet again, the consumer has been left to pick up the bill for poorly conceived and managed contracts.

“The Department argued that the early contracts were necessary to ensure continued investment.

“But its own quantified economic case shows no clear net benefit from awarding the contracts early.

“Indeed, if the Department had used price competition, it should have led to lower energy prices for consumers who are already facing hefty charges.

“Furthermore, the terms of these contracts do not serve consumers well.”

She added: “We are concerned that most of the budget available under this new scheme – 58% – has already been spent on the early contracts awarded without price competition.

“So much was allocated without competition that little is left for testing the market and securing the best value for consumers.”

Energy and Climate Change Secretary Ed Davey said: “This Government has been dealing with a legacy of chronic under-investment and neglect in our energy system.

“To keep the lights on in British homes and businesses we needed to move quickly to secure new capacity and give investors confidence – fast.

“These contracts are better for bill-payers in the long run because it means that we’re able to move to real competition for contracts much faster.”

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