ELECTRICITY bills will rise as a result of “shocking” blunders in awarding new offshore windfarm contracts, an influential group of MPs will warn today. The Public Accounts Committee says deals worth £17billion agreed with firms for transmitting electricity to the mainland were too generous.
It slammed the Government for introducing an “extremely generous” system which seems “heavily skewed towards attracting investors rather than securing a good deal for consumers”.
The report by the all-party committee focuses on an “elaborate” licensing system introduced for operators of “transmission assets” which bring electricity from offshore wind farms to the national grid.
The MPs said these offshore platforms, cables and onshore substations will cost about £8 billion.
But the licensing system means operators of these assets will be paid more than twice that over 20 years – a cost which will be added to electricity bills.
Under the system the operators are protected against inflation by being guaranteed a fully retail price index-linked income for 20 years no matter how much the assets are used.
PAC chairman Margaret Hodge said the penalties against operators whose equipment did not work are small – a maximum of 10 per cent of their income in any one year.
It is unlikely that this new licensing system for bringing electricity from offshore wind farms on to the national grid will deliver any savings for consumers
Commons Public Accounts Committee chairman Margaret Hodge
And investors in these transmission assets will not have to share any gains made through “excessive equity profits” or debt refinancing.
Mrs Hodge said: “Not only is it unlikely that this new licensing system for bringing electricity from offshore wind farms onto the national grid will deliver any savings for consumers, it could well lead to higher prices.
“Indeed the terms of the transmission licences appear to have been designed almost entirely to attract investors at the expense of securing a good deal for consumers.
“Licensees and their investors are provided with a guaranteed income, increasing annually in line with RPI, for 20 years regardless of the extent to which the assets are used.
“Future payments to licensees are estimated at around £17 billion, and this will ultimately be funded by customers who could well end up paying higher electricity prices.”
Mrs Hodge also dismissed Government claims that the licensing system was intended to create a competitive market.
She said: “The reality is that the first six licences were won by just two companies.
“In setting up this new market the Department and Authority ignored vital lessons from previous government experience of private finance initiatives.”
The money paid to licensees will not come from state funds but will be added to electricity bills, said the PAC.
The report was released days after the Met Office admitted that global warming is expected to slow over the next five years – raising fresh doubts over the need for renewable energy.
Consumer Focus Energy director Audrey Gallacher said going green should not lead to “spiralling costs”.
She said: “The report suggests that the rewards for building offshore electricity networks may be excessively generous and that consumers are unlikely to see any benefits.
“We need to decarbonise our power network, but not at the expense of spiralling costs that leave increasing numbers of consumers struggling to pay their energy bills.
“Allowing investors to shift the risk and cost to consumers will encourage them to build new generation plant, but it may not encourage efficient investment, effective competition and affordable energy.”
The PAC was backed by Renewable Energy Foundation director, Dr John Constable, who predicted that the consumer could face an extra £8 billion a year in costs from offshore wind.
He said: “The PAC has put its finger on the fundamental problem with our current energy policy; in order to meet arbitrary targets the government repeatedly sacrifices the consumer interest in order to lure investors into very high risk gambles, such as offshore wind.
“There is a real case for experimenting with offshore wind, but it is technically and economically reckless to invest this heavily ahead of the learning curve. No wonder investors want very high rates of return. They don’t expect this to last more than five to ten years.”
At Lord Lawson’s Global Warming Policy Foundation Dr Benny Peiser described the cost of wind energy as “obscene”.
He said: “I welcome the new-found realism and justified criticism of the Committee of Public Accounts. It is high time that the coalition government reconsiders its damaging green energy policy.
“The obscene cost of wind energy poses a severe risks to the wellbeing of families and the UK economy as a whole. Margaret Hodge and her colleagues are to be praised for highlighting the government’s failure to protect the interest of consumers and families who will suffer badly as a direct result of oppressive wind subsidies.”
But the wind power industry hit back, with the deputy chief executive of RenewableUK, Maf Smith, saying it was “regrettable” that PAC did not take account of the latest evidence.