The UK Government’s decision to award £16.6bn worth of early contracts to eight renewable generation projects without price competition may lead to increased energy costs for consumers, the National Audit Office’s (NAO) new report revealed.
The contracts were awarded under the Department of Energy & Climate Change’s (DECC) Final Investment Decision enabling the renewables scheme to develop five offshore wind farms, two coal plants converted to biomass, and one biomass-combined heat and power plant.
The National Audit Office head Amyas Morse said that early contracts were awarded by the Department of Energy & Climate Change without price competition to avoid an investment gap
"In so doing it has brought forward investment decisions by at least five months," Morse said.
"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."
The government’s decision would entail contractors to provide higher returns to than needed to secure the investment, the NAO said.
"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, " the NAO said.
The DECC has provided certainty of support, by awarding the contracts to the contractors at least five months earlier than they could have achieved under the full Contract for Difference (CFD) regime, according to the report.
The report noted that it is not clear that the entire £16.6bn of commitments were needed so soon to meet the UK’s target of generating 15% of its energy from renewables by 2020.
The early contracts used 58% of the total funds available for renewables’ CFDs to 2020-21.
Image: UK awards £16.6bn contracts renewable generation projects without price competition. Photo: courtesy of xedos4/Freedigitalphotos.net.