Millions of families face higher energy bills because of a “shocking” catalogue of errors made by the Government when it awarded contracts for expensive offshore wind farms, MPs will disclose today.
Consumers could see bills rise in the coming years after “generous” deals worth £17 billion were agreed with energy firms delivering wind-generated power to homes, a report by the Public Accounts Committee (PAC) has warned.
Under a scheme agreed by Labour leader Ed Miliband during the last Labour government, but implemented by Coalition ministers, the contracts guarantee that the power firms will be paid even if they fail to deliver energy to households.
Labour MP Margaret Hodge, who chairs the PAC, described the contracts as a “licence for the private sector to print money at the expense of hard-pressed consumers”.
The warning on energy price hikes comes as temperatures across the UK are set to plummet in the coming days.
The Met Office has issued warnings of ice and severe cold weather, with snowfall predicted across central, northern and south-east England as well as parts of Wales and Scotland.
Heathrow Airport could face severe disruption, with forecasters warning there could be up to 5cm of snow in some parts of the country.
Energy bills have more than doubled since 2004 to more than £1,300 a year per household, largely due to rising gas prices.
Bills are set to go up by hundreds of pounds a year under all the Government’s green and fuel poverty policies.
Following the MPs damning report into the wind farm contracts, the Department for Energy and Climate Change (DECC) has now said it will “re-examine some of the terms” of the lucrative deals.
The sharp criticism of the Government came in a report on the “elaborate” new system that licences companies to operate assets bringing wind-generated power onshore.
Energy ministers want controversial offshore wind farms to provide up to 15 per cent of the country’s electricity needs by 2020.
That will require around £8 billion of investment in infrastructure such as platforms, cables and substations.
The committee said that long-term licences awarded to energy companies so far “appear heavily skewed towards attracting investors rather than securing a good deal for consumers”.
Under the terms of the contracts the companies are guaranteed an RPI inflation linked income for 20 years regardless of how much the infrastructure is used.
The estimated returns of 10-11 per cent on the initial licences “look extremely generous given the limited risks”, the MPs said.
Ministers stand accused of failing to learn lessons from failed Private Finance Initiatives, with the committee warning that costs from the wind farm schemes will now be passed on to taxpayers.
Mrs Hodge, the MP for Barking, described the way the contracts had been awarded as “shocking”.
“[The energy companies] are guaranteed income even if we don’t use the electricity and if the transmission cables fail they can only get fined up to 10 per cent of the total income coming in,” she said.
“It’s like another PFI. If you create such generous terms people would be mad not to get involved in the market.”
The contracts were awarded to the energy firms in March 2011 but the policy was decided by the last Labour Government, the committee confirmed.
“Not only is it unlikely that this new licensing system for bringing electricity from offshore wind farms onto the national grid will deliver any savings for consumers, it could well lead to higher prices,” Mrs Hodge added.
“Indeed the terms of the transmission licences appear to have been designed almost entirely to attract investors at the expense of securing a good deal for consumers.
“Licensees and their investors are provided with a guaranteed income, increasing annually in line with RPI, for 20 years regardless of the extent to which the assets are used.
“Future payments to licensees are estimated at around £17 billion, and this will ultimately be funded by customers who could well end up paying higher electricity prices.”
The Labour MP said DECC and the Gas and Electricity Markets Authority had wanted to create a “competitive market” for offshore transmission, but the first six licences were awarded to just two firms – Transmission Capital Partners and Macquarie.
“In setting up this new market the Department and Authority ignored vital lessons from previous government experience of PFI, such as the need to share refinancing gains, and it is shocking that the Treasury allowed it to proceed,” the Labour MP said.
Christopher Heaton-Harris, the Conservative MP for Daventry, warned that consumers could be left paying for “redundant” wind farm technology because of the deals.
“This is going to be a sizable chunk of money in the future on top of our bills,” Mr Heaton-Harris said.
“There is every chance that in 15 years you could be seeing huge numbers of redundant offshore wind farms that we will still be paying for.”
A DECC spokesman insisted that the contracts had been designed to “drive value for money” for consumers.
“The offshore electricity transmission regime harnesses competitive forces to drive value for money for consumers,” the spokesman said. “Potential licence holders bid against each other on price in the context of the licence terms.
“With six licences now granted, now is the right time to re-examine some of the terms. We therefore welcome Ofgem’s current consultation on them.”
The disclosure that consumers’ energy bills could increase came as a poll showed that the majority of MPs do not trust energy companies to offer genuine competition and provide customers with choices so they can choose between suppliers.
The survey of 92 MPs by pollsters Ipsos MORI found that 86 per cent distrust the companies to “provide clear information so customers can choose between suppliers”.
Of the surveyed MPs, just 10 per cent said they believe energy companies will try to offer “genuine competition” in energy supply.
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