U.K. Audit Questions $28 Billion of Clean Power Projects

The U.K.’s National Audit Office said it’s “not convinced” the government decision to award 16.6 billion pounds ($28 billion) of contracts to eight clean-energy projects is worth the risk to taxpayers.

The Department of Energy & Climate Change’s contracts with five offshore wind farms, two coal-to-biomass plants and a biomass heat and power plant may be needlessly generous to developers, according to a report today from the NAO, which scrutinizes state spending on behalf of Parliament. The beneficiaries include Drax Group Plc (DRX), Dong Energy A/S, SSE Plc (SSE), Statoil ASA (STL) and Statkraft AS.

“Despite the huge consumer subsidy that has gone into supporting these projects, the department has failed to put in place any arrangements to recoup consumers’ money if providers make bigger-than-expected profits,” Margaret Hodge, chairman of Parliament’s Public Accounts Committee, said in an e-mailed statement.

The projects may produce as much as 5 percent of the U.K. total power demand in 2020. The government estimates it needs to get about 30 percent of power from renewables to meet a European Union target of deriving 15 percent of all energy from clean sources by then.

“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,” DECC said today in an e-mailed statement. “Without that investment, projects would have been unable to go ahead or been significantly delayed, putting our future energy security at risk.”

Investor Confidence

The government awarded the early so-called “Final Investment Decision Enabling for Renewables” contracts in April to ensure certainty for investors ahead of the introduction of a permanent system of contracts planned for the end of the year. The contracts guarantee a fixed price per megawatt-hour of power produced.

“The scale of early contracts for renewables, awarded without competition, may have increased costs to consumers,” the audit office said. “It is not clear that the full scale of these commitments was needed so soon to meet the U.K.’s 2020 renewable energy target.”

The NAO said the eight projects account for about 58 percent of the total funds available for clean power plants from the 2015-16 tax year through the one ending in March 2021. It said they’ll cost 4 billion pounds in that period and 16.6 billion pounds through their lifetime. The budget available to all renewable energy projects over the six-year period is 6.9 billion pounds, it said.

Competitive Auctions

The government has said when the new contracts are brought in at the end of the year, it plans to make technologies it deems “mature” to compete against each other and bid for the price they want to receive for their power. It includes onshore wind, solar, hydropower and energy from waste in that category. Less mature technologies, including offshore wind, wouldn’t have to bid competitively straight away.

“Offshore wind, as a less-established technology, would not be going straight into an auction process, so it’s difficult to see that the government would have been able to secure the amount of power needed at a lower price,” Maf Smith, deputy chief executive officer of the RenewableUK industry group said in an e-mailed statement.

To contact the reporters on this story: Justin Doom in New York at jdoom1@bloomberg.net; Alex Morales in London at amorales2@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net Indranil Ghosh, Alex Devine

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