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Government’s green subsidy tinkering to cost bill payers an extra ?1.5bn

Energy bill payers will be forced to stump up an extra ?1.5bn for their energy over the next fifteen years after a tweak to the Government’s auction for low-carbon power subsidies backfired.
The National Audit Office said the rule changes made to last year’s auction for contracts to support new, low-carbon power projects mean that energy users will be on the hook for an extra ?100m a year.
Over the fifteen year life-span of the contracts, which guarantee the project’s earnings through top-up payments, costs will spiral ?1.5bn higher than might otherwise have been the case without the Government’s tinkering.
The reverse auction was initially lauded as a major success for Government after prices steadily fell to new lows, and eventually awarded 11 contracts to projects capable of powering 3.6 million homes.
The falling costs were largely driven by offshore wind developers which have dramatically cut the cost of their mega-turbines in recent years.
Prices could have fallen lower if not for a cap on the capacity available to small-scale projects which burn biomass or waste to generate power. The NAO said this might have squeezed out cheaper projects which were too large to fit within the cap.
Government’s green subsidy tinkering to cost bill payers an extra ?1.5bn

The UK's new investment in clean energy ($)

Credit:
Bloomberg New Energy Finance
The Government’s spending watchdog scolded the Department of Business, Energy and Industrial Strategy for changing the limits on which technologies could take part in the auction without thoroughly testing the impact.
“The Department did not highlight the change to its programme management board or test whether it was likely to lead to unintended consequences,” the NAO report said. “In some situations, the design change could have produced better value for money for consumers, but the Department did not assess how likely these were to occur in practice”.
The unnecessary cost hike has emerged alongside a fresh report from MPs on the Environmental Audit Committee which warned that the UK’s green investment has plummeted to its lowest level in ten years, in a “dramatic and worrying collapse” for the energy industry.
The report revealed that investment in clean energy fell by 10pc in 2016 and 56pc in 2017, to its lowest level since 2008.
“Billions of pounds of investment is needed in clean energy, transport, heating and industry to meet our carbon targets,” said Mary Creagh, the committee’s chair. “The Government must urgently plug this policy gap and publish its plan to secure the investment required to meet the UK’s climate change targets.”
Specifically the committee has called on Government to provide greater clarity on how it intends to deliver the Clean Growth Strategy by the 2018 Budget, and explore the potential of Sovereign Green Bonds.
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