Energy bills will rise even more than expected to pay for wind farms and solar panels because ministers have underestimated the cost of green subsidies, a leading think tank has warned.
Ministers are on track to overshoot a budget for renewable energy subsidies that is already due to reach £7.6 billion by 2020, the analysis by Policy Exchange finds.
The subsidies are paid for through levies on consumer bills, which official estimates suggest will rise to £141 per household each year by the end of this decade if ministers stick within the Treasury-set spending cap.
But the Department of Energy and Climate Change (DECC) has repeatedly overshot the budget and is likely to do so again unless ministers scale back their plans, Policy Exchange finds.
Ministers are expected to award a new series of subsidy contracts for projects such as wind farms as soon as this autumn – but the analysis suggests there may be no money left to do so.
High take-up of rooftop solar panels on houses, falling wholesale energy costs, and higher-than-expected output from offshore wind turbines are all likely to push up the total cost of subsidies, exhausting the spending cap.
“DECC may have already committed the entire budget out to 2020, which will make it difficult or impossible to proceed with any additional projects, unless actions are taken to stem the rise in other costs,” the analysis finds.
Richard Howard, head of environment and energy at the think tank, said: “If there aren’t changes in policy and DECC continues handing out subsidy contracts, there’s a very real risk that they will overshoot their budget.”
The annual subsidy bill is already more than £4 billion and projects scheduled to be built in coming years will add to that total.
Official DECC figures suggest about £1 billion of the £7.6 billion budget for 2020 remains to be allocated, but Policy Exchange suggests DECC’s figures are wrong.
Solar panels on household roofs have proven more popular than expected, pushing up the total bill for the subsidy scheme that funds them, it says.
Big new wind and solar farms will also need more subsidy than expected because energy companies have been promised subsidies to “top up” the market price to a guaranteed level. The market price has fallen, meaning the top up will be greater than thought.
Offshore wind turbines are also likely to produce more power than expected and therefore reap more subsidies, the analysis shows.
A DECC spokesman said it kept the cost of subsidies “under constant review” and updated its modelling to reflect changing circumstances.
She added: “The new Government will be setting out its plans for delivering a new generation of secure electricity supplies at the lowest possible cost to consumers in the near future.”
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