The Government may have pushed up consumers’ energy costs by awarding £16.6bn worth of contracts for renewables without competition, the spending watchdog has said.
Contracts for eight renewable energy projects were awarded early to avoid delays in investment as the Government brought in the new "contracts for difference" scheme, which guarantees an agreed price for electricity generated by low-carbon energy.
The contracts were awarded to develop five offshore wind farms, for two coal plants to convert to burning biomass and for one new biomass combined heat and power plant, the National Audit Office said.
The NAO said that awarding the contracts early gave the developers certainty that they were going to get support at least five months before they would have done under the full contracts for difference scheme.
It boosted confidence for the renewable industry and contributed to efforts to transform the electricity market, the spending watchdog said, but the total cost to the consumer will be £16.6bn over the lifetime of these contracts as they are required to meet the cost of developing low-carbon power through their energy bills.
Contracts for difference are expected to be better value for money than the old system of subsidies for renewables, but the early contracts – awarded without competition between developers –account for 58 per cent of the funds available for renewable contracts for difference up to 2020/21.
It is not clear that so much of the budget needed to be committed early in order to meet the UK's legally binding targets to source 15 per cent of all its energy – electricity, heating and transport – from renewables by 2020, the watchdog said.
Amyas Morse, head of the National Audit Office, said: "The Department of Energy and Climate Change (Decc) awarded the early contracts without price competition to avoid an investment gap. In so doing it has brought forward investment decisions by at least five months.
"The investments supported should contribute towards the UK's achieving its renewable energy target in 2020, but it is not clear that awarding fewer early contracts would have put the achievement of that target at risk.
"As the contracts for difference regime has the potential to secure better value for consumers through price competition, committing so much of the available funding through early contracts, without competition, has limited the department's opportunity to secure better value for money."
A Decc spokesman said: "The Government has been dealing with a legacy of underinvestment and neglect in our energy system, meaning we've needed to drive through reforms to secure investment in new generation to keep the lights on in the years and decades ahead while decarbonising our electricity supplies, and getting the best possible deal for consumers.
"As the NAO's report recognises, these early contracts are designed to offer better value to bill-payers than the previous system and have reassured those we need to invest in our energy security. Without that investment, projects would have been unable to go ahead or been significantly delayed – putting our future energy security at risk."
Deputy chief executive of industry body RenewableUK Maf Smith backed Decc’s assessment that the early investment had been crucial to secure investment in these renewable projects.
“This gave developers the confidence to go ahead with major green energy infrastructure projects,” he said. “Without the FID-ER (the early contract scheme), there would have been a genuine risk of investment slowing down.
“Overall, the process has helped to stimulate commitments to the UK by manufacturers such as Siemens which will be creating 1,000 jobs in offshore wind in East Yorkshire. More than 13,000 people in the UK already owe their livelihood to the offshore wind sector, which has the potential to employ nearly 45,000 by 2023.”
Tom Greatrex, shadow energy minister, said: "This report raises serious questions about whether the Government's mismanagement of contracts for clean energy projects will add a totally unnecessary cost to consumers' energy bills, which have already increased by more than £300 under David Cameron.
"Consumers will be rightly outraged if they are left to foot the bill for this Tory-led Government's incompetence."