MPs criticise 'poorly conceived and managed' renewable energy contracts

Will Green is news editor of Supply Management
8 October 2014

MPs have criticised the early award of renewable energy contracts by the UK government for “failing to secure best value”.

In a report the Public Accounts Select Committee (PAC) said the Department of Energy and Climate Change (DECC) awarded £16.6 billion worth of contracts for renewable electricity generation without price competition.

The report said the DECC argued the early contracts were necessary to ensure continued investment and meet 2020 renewable energy targets but “its own quantified economic case shows no clear net benefit from awarding the contracts early”.

The PAC said if the DECC had used price competition it “should have led to lower energy prices” while the terms of the contracts “failed to defend consumers’ interests” and meant “consumers pick up more of the risk associated with inflation”.

PAC chairman and Labour MP Margaret Hodge said: “Yet again the consumer has been left to pick up the bill for poorly conceived and managed contracts.”

MPs said “claw-back provisions” should have been included to return “excessive profits” to the public purse and the DECC had “no detailed knowledge and understanding of the developers’ costs and estimates”.

The committee expressed concern that 58 per cent of the budget available under the scheme had been spent on the early contracts but “it is not clear that these early contracts were all necessary to meet the 2020 targets”.

Hodge said: “What is now needed is a shift to full price competition, contracts which allow some claw-back for consumers of any excessive profits, and a balance of technologies which hits climate targets at least cost for consumers.”

In April the DECC announced the award of eight contracts to renewable electricity projects under which generators were paid an “administratively-set strike price”. Under the new Contracts for Difference scheme differences between the strike price and market price will be administered by a ‘counterparty body’ that will pay generators where the strike price is lower, and get paid by generators where the market price is higher.

Energy and climate change secretary Ed Davey said: “This government has been dealing with a legacy of chronic underinvestment and neglect in our energy system. To keep the lights on in British homes and businesses we needed to move quickly to secure new capacity and give investors confidence – fast.

“These contracts are better for bill payers in the long run because it means that we’re able to move to real competition for contracts much faster.”

 

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