June 27, 2014
U.K.

Watchdog questions energy deals

by James Reed, Political Correspondent | Yorkshire Post | 27 June 2014 | www.yorkshirepost.co.uk

Consumers may have to pay higher energy bills than necessary because of the way the Government awarded contracts to generators, according to a new report.

The National Audit Office questioned the decision to award contracts to eight renewable energy projects including Drax power station, near Selby, to increase its use of biomass to generate power instead of coal and a planned wind farm off the coast of Hornsea.

The contracts, which guarantee generators a price for their power, were designed to help encourage investment in green energy which is expected to create thousands of jobs in Yorkshire.

But the National Audit Office said the fact they were awarded without competition meant there was a chance the guaranteed price could have been set too high.

It is the second question mark raised over the energy market in as many days after regulator Ofgem yesterday asked the Competition and Markets Authority to investigate the sector.

The investigation, expected to take around 18 months, will look at the relationship between the supply businesses and generation arms of the Big Six energy firms.

The Government is making major changes to the energy market which will come into force in full next year.

But concerns that important renewables projects could be delayed led to the Government awarding the eight early contracts.

The NAO report said it was “not clear” contracts needed to be awarded on this scale to

Margaret Hodge, chairwoman of the Public Accounts Committee of MPs which oversee public spending, said she was “frustrated” the Government had not put in place measures that would allow it to recoup excessive payments.

“This is an issue we have raised as a committee before – private providers must not be allowed to make excessive profits at the expense of consumers and taxpayers,” she said.

Drax insisted its contract had been necessary to avoid delays in its move away from coal towards biomass.

A statement from the company said: “Early contracts provide the much needed confidence to underpin investment decisions which need to be taken now to allow the timely construction of critical components of the biomass supply chain. This is essential for the continued economic development of this low carbon, sustainable fuel source.”

A Department for Energy and Climate Change spokesman said: “The Government has been dealing with a legacy of underinvestment and neglect in our energy system, meaning we’ve needed to drive through reforms to secure investment in new generation to keep the lights on in the years and decades ahead while decarbonising our electricity supplies, and getting the best possible deal for consumers.

“As the NAO’s report recognises, these early contracts are designed to offer better value to bill-payers 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.”