Member Article

Government?s ?shocking? errors in wind farm contracts

A number of “shocking” errors made by the Government could lead to higher energy prices for consumers, the Public Accountants Committee say.

A report on the way the Government awarded contracts to offshore wind farm providers suggests licence terms were devised to attract investors, “at the expense of securing a good deal for consumers.”

The investigation is into the way The Department for Energy and Climate Change and the Gas and Electricity Markets Authority award licences to offshore energy operators following competitions.

Operators receive income from the National Grid which recovers its costs from electricity suppliers and generators. The Committee say that future payments to licensees, amounting to £17bn, will be passed onto consumers through electricity bills.

Returns of 10-11% for investors are said to be “extremely generous” given that licensees are guaranteed RPI-linked income for 20 years, regardless of the extent to which the assets are used.

Penalties are limited to 10% of expected income in any one year if the operators fail to deliver energy when required.

Chair of the Committee, Margaret Hodge, said: “The Department and the Authority told us their aim was to develop a competitive market for offshore electricity transmission but 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 PFI, such as the need to share refinancing gains, and it is shocking that the Treasury allowed it to proceed.

“The Treasury’s defence, that it did not want to introduce any limitations on investors, does not cut it. It used a similar argument in relation to early PFI deals, only to reverse its position later. The Treasury must ensure that lessons from PFI are passed on and applied across government.”

This was posted in Bdaily's Members' News section by Tom Keighley .