NAO: Decc failed to protect consumers with early CfDs

The Department of Energy and Climate Change (Decc) failed to protect consumers when it agreed eight early renewable energy contracts without any price competition, according to a report by the National Audit Office (NAO).

In May, Decc awarded eight renewable energy projects contracts under the Final Investment Decision enabling for Renewables (FIDeR) scheme, worth a total of £16.6 billion.

This was to prevent an investment hiatus in renewable energy projects, but, according to the NAO report, has already committed 58 per cent of Decc’s budget for renewable energy projects under the Levy Control Framework until 2021.

The NAO said it was concerned that because these contracts were awarded without any competition, Decc “may have increased costs to consumers”.

Alongside that, the NAO report stated that having used the majority of the cash to support the eight renewable projects – five offshore windfarms, two biomass conversions, and a dedicated combined heat and power biomass facility – Decc “increased the risk of not obtaining support for later projects”.

The report also stated “it is not clear that the full scale of these commitments was needed so soon to meet the UK’s 2020 renewable energy target”.

The NAO acknowledged the FIDeR programme did provide certainty for the five projects and their developers “at least five months earlier” than under the full CfD regime, which is due to begin in December 2014, and cited the £160 million investment in Yorkshire by Siemens.

Amyas Morse, head of the NAO, said: “As the CfD regime has the potential to secure better value for consumers through price competition, committing so much of the available funding through early contacts, without competition, has limited the department’s opportunity to secure better value for money.”

Chair of the Public Accounts Committee, Margaret Hodge, added that Decc has “limited its options for future investments”.

Shadow energy minister Tom Greatrex, called on the government to introduce a 2030 decarbonisation target, and added: “Consumers will be rightly outraged if they are left to foot the bill for this Tory-led Government’s incompetence.”

Renewable UK’s deputy chief executive Maf Smith said these contracts will help to reduce the costs of offshore wind, and added: “Without the FIDeR, there would have been a genuine risk of investment slowing down.”

Decc defended the contracts, and said they offered better value for money for consumers than the previous Renewables Obligation regime and that the government had to drive through te reforms to deal with “a legacy of underinvestment and neglect in our energy system”.

A Decc spokesperson said: “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.”