There is growing concerns in many countries about the costs of subsidising renewable energy. Well, there are also concerns about the costs for nuclear but the emphasis these days appears to be on renewable energy as shown in an article by Guy Chazan in the Financial Times. The criticism in this post is a national one, while a separate post this week shows how the European Commission is also wary of some of the subsidies.
National Audit Office attacks cost of early green projects in UK
Energy costs for consumers were pushed up by the UK government’s decision to award £16.6bn of early subsidies to renewable projects without price competition, according to a critical report by the National Audit Office.
The prices that renewable developers were awarded for their energy “may provide higher returns than needed to secure investment”, the NAO said.
It also said the awards leave less money in the pot for other renewable projects that will compete for subsidies in the future.
A government spokesperson said that, without the early contracts, “projects would have been unable to go ahead, or been significantly delayed – putting our future energy security at risk”.
However, the NAO report will stoke concerns that generous state support for green energy will push up household fuel bills at a time when rising energy costs are already a hot political issue.
At the heart of the debate is the new system of support for low-carbon energy projects, known as contracts for difference or CFDs, which were introduced last year as part of the government’s sweeping reform of the electricity market.
These guarantee developers an agreed price for the electricity they generate. If the market price for electricity is lower than this “strike price”, the developers receive a top-up payment: if it is higher, they have to pay the difference.
CFDs are to be launched later this year. But the Department of Energy and Climate Change also created an early form of CFD to allow developers with advanced projects to move ahead with them quickly before the full rollout of the scheme, and so avoid a hiatus in investment.
In April, the government revealed it had awarded early CFDs to eight projects – five offshore wind farms and three biomass ventures. These are centred on strike prices that were set by government fiat, rather than through auctions.
But the contracts have proven controversial. They require state aid approval from the European Commission, but officials in Brussels have expressed concern over the fact that they were awarded without competitive auctions.
That objection also figures prominently in the NAO’s report. It said the early CFDs had given the UK’s renewable industry greater confidence in the near term: but their sheer scale “may have increased costs to consumers”.
It said Decc had proceeded with the scheme despite acknowledging that competitive auctions for full CFDs to be awarded later this year “might reveal subsequently that its administratively set strike prices in some cases were too high”.
It added that it was not clear that the whole £16.6bn of commitments were needed so soon to meet the UK’s target of generating 15 per cent of its energy from renewables by 2020.
The NAO also said the early contracts had used up 58 per cent of the total funds available for renewables’ CFDs to 2020-21.
Responding to the NAO report, Margaret Hodge, chair of parliament’s public accounts committee, said that by committing so much funding upfront, Decc had “limited its options for future investments”.
Energy in Demand - Sustainable Energy - Rod Janssen 