Public ‘left to pick up tab for renewable energy deals’

MARGARET HODGE: The Department failed to secure 'best value for consumers.
MARGARET HODGE: The Department failed to secure 'best value for consumers.
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HOUSEHOLD bills will go up after the Government rushed into “poorly conceived and managed” renewable energy contracts, a new report has found.

The influential Public Accounts Committee has said that “yet again, the consumer has been left to pick up the bill” after £16bn worth of renewable energy contracts were signed before the Department for Energy had considered whether cheaper energy generating schemes would be coming forward.

Eight projects shared the public funds which the Department has already admitted will push up bills. The schemes include two in Yorkshire, an offshore wind farm and a biomass facility at the Drax power plant.

By using up the majority of its renewables subsidies pot on contracts signed early, the House of Commons committee today reveals, the Government left less cash aside for firms which could offer a cheaper price.

The report adds that households will shoulder all the 
risks while firms see all the benefits, with companies keeping excess profits rather than paying back the Government investment.

In a highly critical report, committee chairwoman Margaret Hodge said: “By awarding contracts worth up to £16.6bn 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.”

She added: “We are concerned that most of the budget available under this new scheme – 58 per cent – 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.”

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 prices linked to CPI so that if inflation rises, consumers foot the bill with higher energy costs.

Earlier this year the Government was forced to admit backing new renewable energy schemes would add around two per cent to bills, although further measures would reduce this impact.

Yorkshire was among the big winners of the energy announcement, which paved the way for one of the biggest offshore wind farms to be built off the Yorkshire coast and for the Drax power station to move towards biomass.

It is thought Hornsea wind farm alone could see dozens of turbines built to power around one million homes, while the Drax funding is part of wider plans to decarbonise the site.

The Government has insisted the contracts will benefit taxpayers in the long run.

Energy Secretary Ed Davey said:“This Government has been dealing with a legacy of chronic underinvestment 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 billpayers in the long run because it means that we’re able to move to real competition for contracts much faster.”