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Government meddling adds £100m a year to energy bills, National Audit Office says

Change to renewable energy contracts to cost £1.5bn over 15 years, spending watchdog finds

Ben Chapman
Wednesday 16 May 2018 09:29 BST
Smaller, more expensive projects were awarded contracts ahead of projects generating more electricity at a cheaper price per unit
Smaller, more expensive projects were awarded contracts ahead of projects generating more electricity at a cheaper price per unit (AFP)

Energy users will pay an extra £1.5bn on their electricity bills thanks to government changes to rules on how low-carbon electricity contracts are awarded, the public spending watchdog has revealed.

The National Audit Office (NAO) said the move by the Department for Business, Energy and Industrial Strategy (BEIS) will add £100m to bills each year for 15 years.

Last year, the department awarded 11 “contracts for difference” through an auction to low-carbon electricity generation projects.

The 15-year contracts set an agreed minimum price that electricity generators will receive for supplying electricity. If the market price falls below that price, energy users top up the difference.

In April 2015, the department changed the rules on how the cap would apply in future auctions. This change meant smaller, more expensive projects could be awarded contracts ahead of projects generating more electricity but at a cheaper price per unit.

The NAO said that BEIS failed to test whether there could be “unintended consequences” from the move.

In some situations, the design change could have produced better value for money for consumers, the NAO said, but the department did not assess how likely these were to occur in practice.

“The department recognises that this means the outcome of the auction was suboptimal,” the NAO said. The department has agreed not to apply the rules in the same way in future auctions.

Meg Hillier, the chair of the Commons Public Accounts Committee, said: “Once again the department has neglected to put the interests of service users at the forefront of its thinking.”

Despite the additional costs for consumers resulting from the decision, significant falls in the price of offshore wind generation for offshore wind farms meant that the contracts awarded in the 2017 auction were at lower prices than the government had expected. The auction also secured more generating capacity than predicted.

Households have been hit with price hikes by several of the major energy suppliers in recent weeks. British Gas, SSE, Npower power have all increased the cost of gas and electricity.

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