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27.06.14

NAO criticises DECC over £16bn renewable energy contracts

The Department of Energy & Climate Change (DECC) “did not sufficiently protect consumers’ interests” when it awarded, without competition, £16.6bn worth of early contracts to eight renewable generation projects, the National Audit Office (NAO) has warned.

In 2013, the DECC launched the Final Investment Decision enabling for Renewables (FIDeR) scheme. This was to prevent unnecessary delays to investment in new renewable generation, while it established the Contracts for Difference regime, which will support such projects commissioned from 1 April 2015.

The DECC awarded early contracts to develop five offshore wind farms, two coal plant conversions to biomass, and one bio-mass combined heat and power plant. The total cost to consumers of these contracts over their contract lifetime will be £16.6bn.

NAO stated that the Department proceeded with the FIDeR scheme to secure continuing investment in new renewable generation, despite acknowledging that competitive pricing might reveal subsequently that its administratively set strike prices in some cases were too high.

However, it is not clear that the full scale of these commitments were needed so soon to meet the UK’s 2020 renewable energy target. The early contracts have committed 58% of the funds available for renewables Contracts for Difference to 2020-21.

Amyas Morse, head of the NAO, said: “The 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.”

But a DECC spokesperson said that the government had been dealing with a legacy of under-investment and neglect in UK energy as well as trying to decarbonise electricity supplies.

“These early contracts are designed to offer better value to billpayers than the previous system and have reassured those we need to invest in our energy security,” he said. “Without that investment, projects would have been unable to go ahead or been significantly delayed, putting our future energy security at risk.”

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