Limitations on green energy subsidies could as much as £110 to household energy bills by 2020 leading a National Audit Office report to warn that they have not delivered value for money.
According to the report, a £7.6 billion cap on subsidies for low-carbon electricity set by the Government for 2020/2021 will be exceeded by more than £1 billion.
The report blames the Government’s poor forecasting, suggesting that its current method of allocation means there will be very little of the budget left to cover the cost for the next few years.This is particularly unfortunate as it’s also going to be when the cost of renewable projects will fall considerably and would technically deliver more value for its money.The Government was too slow to see it was going to bust the budget, failed to consider the uncertainty around its forecasts and did not learn from previous failures to keep costs of renewable energy subsidies under control, the report said.
But, overall, average consumer energy bills are set to be much lower by 2020 than the £1,259 anticipated two years ago owing to lower wholesale prices, falling to £991 by then.
That includes £110 in payments to low-carbon electricity, £17 more than it would be if the cap had not been breached.
Other climate change and energy policies such as installing energy efficiency measures and paying power plants to stay online to keep the lights on, are forecast to add £54 in 2020.
The levy control framework (LCF) was introduced by the Treasury and the former Department of Energy and Climate Change in 2011, and since November 2012 has covered three low-carbon power schemes paid for through consumer bills.
The latest forecasts show the schemes - renewables obligation, feed-in tariffs, contracts for difference - are set to exceed the cap and cost £8.7 billion in 2020/2021.
While the NAO’s report into the LCF said its introduction was a valuable step forward in Government moves to control the costs of consumer-funded energy policies, it has not secured value for money.
A drop in the wholesale cost of energy has seen overall consumer bills fall, but pushes up the top-up payments which subsidise renewables under the contracts for difference scheme by £300 million by 2020.
There were also more projects coming forward under two of the schemes than expected and more electricity was generated than predicted.
The NAO said a crucial assumption - how much power would come from new offshore wind farms - was not updated for 18 months, despite the Government signing £615 million of new contracts during that time.
Ministers also signed up eight large renewables projects on “early contracts” to prevent an investment hiatus, but this used up all the budget under the cap that was not taken by the renewables obligation and feed-in tariffs.
These included offshore wind schemes which may have cost £300 million more a year than if they had been forced to compete for contracts.
Holding back more of the levy control framework budget and allocating it later in the period up to 2020/2021 would have been more cost-effective as renewables costs fell, the report said.
Ministers have failed to support investor confidence, because of a lack of transparency about the system and what happens after 2020, and have not been sufficiently accountable to Parliament or consumers.
The Government should do more to develop a coherent, transparent and long-term approach for controlling subsidies and should regularly report on the costs and impacts for consumers - which it has not done since 2014.
NAO head Amyas Morse said: “The levy control framework has helped make some of the impacts of renewable energy policies on consumers clearer.
“But government’s forecasting, allocation of the budget and approach to dealing with uncertainty has been poor, and so has not supported value for money.”