Exchequer 'netting a £1bn windfall from green energy'

Consumers are being overcharged for green energy such as wind power by as much as £1bn - money which is going into the Exchequer's coffers, Parliament's spending watchdog, the National Audit Office, discloses today.

The NAO says that this back-door tax arises from the way that the Government is administering the renewables obligation, the scheme which requires electricity suppliers to buy a set amount of green energy, which is more expensive than other forms of generation such as gas and coal. The extra costs are then passed on in the form of higher domestic bills.

Some sites, such as onshore wind farms and landfill gas plants, are receiving more financial support than is needed to make them commercially viable, the NAO says.

The surplus payments, which the NAO estimates will reach between £550m and £1bn by 2010, are being held in a fund administered by the energy regulator Ofgem, the bulk of which is likely to be paid into the Government's consolidated fund. Sir John Bourn, the head of the NAO, calls in the report on the Department of Trade and Industry and the Treasury to explain to Parliament how the surplus has arisen and how it will be treated.

The NAO says that the Government's planned review this year of the renewables obligation would be a good opportunity to assess the cost-effectiveness of the scheme. However, the DTI has already decided that the review will not cover the price of renewable certificates or annual obligations on suppliers.

The NAO's own consultants estimated that, at present levels of funding, the amounts being generated through the renewables obligation would be one-third more than is needed to make green energy economic over the next 20 years.

The report says that the Government's target of generating 10 per cent of all electricity from renewable sources by 2010 will cost taxpayers and consumers an extra £1bn a year by the end of the decade, adding about 5 per cent to bills. The UK is on track to hit the target but only if wholesale electricity prices remain at or around their current high levels, it adds.