Ofgem condemns 'green' subsidies

Ofgem, the energy watchdog, took a swipe at the Government's plans for renewable energy yesterday, saying they were "unnecessary and misguided" and would result in higher bills for customers.

The Government revealed this week that it was considering amendments to its Energy Bill, currently being debated in the House of Lords, that will give further subsidies to renewable energy generators in "peripheral areas".

Lord Davies of Oldham told the Lords on Thursday that the Government was considering whether "to give renewables in specified areas some dispensation to protect them from high transmission charges". So far, Scotland has been earmarked for such additional subsidies.

Sir John Mogg, chairman of Ofgem, has hit back at these proposals, saying that subsidies worth £485m are already in place to encourage renewable energy. He expressed doubts that additional subsidies will boost further renewable energy development and said extra subsidies, wherever they are directed, would amount to higher bills for all energy customers throughout UK.

"A great deal is already being done to encourage renewable generation. There is no evidence that further investment would result. Indeed, some Scottish renewables would receive a subsidy that other renewables, anywhere in the UK, would not," Sir John said.

He argues that such a move by the Government would mark a step away from cost-reflective charging for transmitting energy. This system allows companies that generate energy close to existing grids and in built-up areas to charge less than remote areas with a sparse population and little transmission infrastructure.

"Cost-reflective charging is one of the cornerstones of the electricity generation market. For competition to flourish, companies need a stable regulatory environment without Government interference and should be able to compete on a level playing field," Sir John said.