Households face paying hundreds of millions of pounds too much on their energy bills to fund new offshore wind farms, after ministers failed to ensure good value when awarding £16.6bn in green subsidies, the National Audit Office has found.
Energy companies stand to reap “excessive” profits as a result of the way ministers handed out the contracts for eight renewable energy projects, which will together add £11 to consumer energy bills by 2020, the spending watchdog found.
Ministers in April signed contracts with companies to build five offshore wind farms, convert two coal power plants to burn biomass, and construct one new biomass plant.
Subsidies for the projects will peak at more than £1.2bn a year, funded through levies on consumer energy bills, but will provide just 5 per cent of the UK’s energy needs. The subsidy bill is forecast to reach £16.6bn over two decades, with the majority – £11.7bn – going to the wind farms.
In a scathing report, the NAO said it was “not convinced that the Government sufficiently protected consumers’ interests”, because it awarded the contracts “without competition”.
“This decision may provide higher returns to contractors than needed to secure the investment,” it said. Ministers failed to include any provision to claw back money if subsidies proved too generous.
The NAO suggested one way in which £325m could have been cut from the bill for the new wind farms, which will be built in phases, simply by paying companies lower subsidies for the turbines they built later on – when costs are likely to have fallen.
Ministers plan to introduce a new competitive system for green energy subsidies later this year, designed to drive down costs.
However, they bypassed this system and awarded the eight contracts early, without competition, because they feared there would otherwise be a delay that could see the UK miss EU green energy targets in 2020.
But the NAO said it was “not convinced” by this logic as the green targets might have been hit anyway without all eight projects. “The scale of early contracts for renewables, awarded without competition, may have increased costs to consumers,” it said.
The eight projects were handed subsidies at fixed levels for each technology type, without being asking to disclose actual costs for their specific project. They could start generating just five months earlier than if their subsidies had been awarded through the main competitive process.
Jill Goldsmith, the NAO director who wrote the report, said: “We have concluded that they have spent too much on these early contracts.”
Tom Greatrex, Labour’s shadow energy minister, said: “This report raises serious questions about whether the Government’s mismanagement of contracts for clean energy projects will add a totally unnecessary cost to consumers’ energy bills. Consumers will be rightly outraged if they are left to foot the bill for this Tory-led Government’s incompetence.”
Total green energy subsidies are capped at £7.6bn in 2020-21, of which much is already used up by existing wind farms and solar panels.
The NAO calculated there would be £1.8bn remaining for projects through the new subsidy system – but that £1.2bn or 65 per cent of that had been used up by the eight contracts already awarded.
That meant there would now be less money left to fund subsequent projects that could be cheaper because of competition.
MPs on the Public Accounts Committee are now preparing to grill DECC’s permanent secretary Stephen Lovegrove and other senior officials about the contracts at a hearing next week.
A DECC spokesperson said the eight contracts were “designed to offer better value to billpayers than the previous system and have reassured those we need to invest in our energy security”.
“Without that investment, projects would have been unable to go ahead or been significantly delayed – putting our future energy security at risk,” it said.
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