The Queen asked ministers for a poverty handout to help heat her palaces but was rebuffed because they feared it would be a public relations disaster, documents disclosed under the Freedom of Information Act reveal.
Royal aides were told that the £60m worth of energy-saving grants were aimed at families on low incomes and if the money was given to Buckingham Palace instead of housing associations or hospitals it could lead to "adverse publicity" for the Queen and the Government.
Aides complained to ministers in 2004 that the Queen's gas and electricity bills, which had increased by 50 per cent that year, stood at more than £1m a year and had become "untenable".
The Royal Household also complained that the £15m government grant to maintain the Queen's palaces was inadequate.
In search of more money-saving schemes, the Queen's deputy treasurer wrote to the Department for Culture, Media and Sport to ask whether the Royal Household would be eligible for a grant to replace four combined heat and power (CHP) units at Buckingham Palace and Windsor Castle.
He asked: "Community Energy can fund up to 40 per cent of the capital costs of implementing a community heating scheme... Since we are already grant-in-aid funded [the Queen receives £15m a year for the upkeep of her palaces] we would like to know whether the Household [would] be able to benefit from these grants. I look forward to your comments."
Under this scheme administered by the Environment department, schools, hospitals, councils and housing associations have been awarded £60m for heating programmes which benefit people on low incomes.
Taxpayers already contribute £38m to pay for the Royal Family. Yet some of the buildings which would have benefited from the energy grant were occupied by minor royals living in grace and favour accommodation on the royal estates. Surprisingly the Government offered no resistance to the proposed application and cleared the way for the Queen to take advantage of the handout.
But by August 2004 the documents show that Whitehall officials had changed their minds and poured cold water on the whole idea. In an email sent to the Palace it was diplomatically explained that the funds were aimed at people on "low incomes".
The official wrote: "I think this is where the Community Energy Funding is directed and ties in with most allocations going to community heating schemes run by local authorities, housing associations, universities etc. I also feel a bit uneasy about the probable adverse press coverage if the Palace were given a grant at the expense of say a hospital. Sorry this doesn't sound more positive."
The Palace had more joy when it sought permission to find a more affordable contractor to supply the Queen with her gas and oil. Documents show that the Royal Household's gas bill had risen from £319,000 in 2002 to £526,000 in 2006. Electricity had increased by an even bigger margin, jumping from £249,000 to £513,000 over the same period.
In an email to the DCMS, palace officials wrote in September 2005: "As mentioned [in our telephone conversation today], the commercial market position for utilities has become untenable with price rises of over 50 per cent when we went out to tender last year ... The position is that all our contracts for gas and electricity will mature on 30 September 2006. I do not want to go out to tender next year and find the prices have risen significantly again but, given the recent position of energy markets, I suspect that they will."
In its proposal the Palace suggested a move towards a wholesale contract under a single tender with Inenco which also serves the gas and electricity needs of the Prison Service and Channel 4.
But ministers were concerned that by using a single tender, rather than going to the open market place, the Palace might be in breach of EU contracting rules which govern deals worth more than £306,753. The issue centred on whether the Royal Household was a "public sector contracting authority" for the purpose of the EU regulations.
Preliminary advice from the Treasury was that the Royal Household was a public body but the Palace argued that it wasn't.
The Whitehall memo concludes: "If they [the Royal Household] are convinced of their view, and since we have no definitive advice to the contrary, then they can proceed."
The switch was finally approved by DCMS officials who noted that the new contract will "undercut" traditional fuel companies by 6-8 per cent. If they had thought of it two years earlier, they could have saved £144,000.
Last year thermal imaging technology, used to identify and measure energy waste, showed heat pouring through the closed curtained windows, the roof and cracks in the walls. A team of energy surveyors labelled the Palace "shocking and appalling", the biggest "central heating radiator" in the capital and gave it a score of 0 out of 10. St James's Palace was in 12th place in the survey of 170 buildings with a score of only five out of 10.
Her Majesty didn't get the money - so who did?
Fife Council £1,591,043
Develop the Dunfermline community heating scheme – 300 households and four public buildings – using waste heat from the Lochhead landfill site.
Birmingham City Council £1,354,699
A new heat network linking six public buildings including Aston University, a children's hospital and court buildings.
Torridge District Council £600,144
A new heat network, utilising heat from the existing Holsworthy Biogas power plant to connect 52 council houses and five public buildings.
Highland Council £800,000
A new heat network serving a primary school and over 200 homes on the Minafua Estate. There is potential to include biomass at a future date.
Falkirk Council £983,730
A new heat network to link five tower blocks of more than 400 homes. There is scope for expansion by connecting four further towers.
University of Wales £535,000
Refurbish existing network to serve teaching and research buildings and halls of residence at Swansea.
London Borough of Islington £653,702
A new heat network connecting 900 homes and three public buildings,comprising a school, swimming pool and leisure centre.
Home Housing Association £35,000
A new heat network connecting 26 homes, replacing individual storage heaters at Stafford Court, West Durham.
Dungannon & District Housing Association £90,000
A new scheme using a wood-fired boiler – using a local woodchip supply – to serve 35 purpose-built flats.
Barnsley Metropolitan Borough Council £35,000
Replace coal-fired boilers serving three public buildings with biomass, using prunings produced by the Council's own tree work.
Department for Constitutional Affairs £84,000
Connect the Combined Courts Building in Nottingham to a existing network.
Birmingham Heartlands Hospital NHS Trust £403,000
Expand the hospital's existing network to the maternity unit through theaddition of absorption chilling.
Doncaster and Bassetlaw Hospital NHS Foundation Trust £1,394,498
To augment the hospital's existing steam network with a new low temperature hot water network to utilise low grade heat.
Eastleigh Borough Council £100,000
A new heat network connecting council civic offices and a leisure centre.
Highland Council £1,380,000
A new woodchip-fuelled plant serving 540 dwellings in Pulteneytown, Wick, Caithness. The plant would also serve the local hospital, secondary school, swimming pool, library and more than 1,000 additional homes.
Home Housing Association £29,500
A new heat network connecting 22 dwellings in Manor Court, Cockermouth, by replacing individual storage heaters.
Kingston (upon Thames) Hospital NHS Trust £455,000
Supply heat via an existing network to 139 new dwellings, comprising 75 low cost dwellings and a combination of nursing homes and sheltered residences.