Consumer group Which? questions virtue of green energy subsidies
Which? warns planned green energy subsidies may not be value for money, as more cost effective options may be overlooked.
A leading consumer group has warned Ed Davey that his proposed subsidy scheme will encourage the construction of more higher-cost energy projects such as offshore wind farms that might not deliver value for money.
Which? has written to the secretary of state for energy and climate change saying plans for electricity market reform "could result in expensive generation projects being prioritised over cheaper, more cost-effective options".
The letter, which was copied to Treasury officials, reflects growing concern about the cost of the low-carbon agenda, something that has been raised principally by energy-intensive businesses and Conservative backbenchers.
It comes the day after Ofgem, the energy regulator, warned the big six suppliers that they were in danger of further undermining trust in the industry by failing to pass on wholesale price reductions to retail consumers.
Which? insists it supports a "green" revolution and does not want to pick winners or losers in the renewable energy field but believes the Contract for Difference (CfD) subsidy regime is flawed.
"It is vital that any measure that adds costs to consumers' bills is closely scrutinised at a time when energy prices are the top financial concern for consumers. Whilst there has been a lot of welcome attention given to tackling the immediate cost of energy bills, Which? believes that more attention needs to be done to address energy costs in the long term," Richard Lloyd, the Which? executive director, wrote in his letter to Davey.
He said the plans "could result in expensive generation projects being prioritised over cheaper, more cost-effective options. The absence of full competition from the Contracts for Difference process at the outset risks priority being given to investment that may not deliver value for money for customers."
Which? would like ministers to introduce competition between different kinds of technologies, onshore and offshore wind for example, as well as between operators.
A briefing document sent with the letter says it is unclear how there would be any price competition for offshore wind under the current arrangements. "In our view it is not appropriate to shield offshore wind developers from competitive cost pressures ... there are a wide range of costs across offshore wind projects but accurate cost information is hard to come by. Allocating subsidy competitively is the best way of revealing this information."
The coalition government has partly prioritised more expensive offshore wind over cheaper onshore wind in its calculations because of huge opposition to the latter from backbench Conservatives and some local communities.
The Department of Energy and Climate Change said that CfDs provided the most efficient long-term support for low-carbon generation - including nuclear, renewables and carbon capture and storage. "They give greater certainty and stability of revenues by removing exposure to volatile wholesale prices, and protect consumers from paying for support when electricity prices are high."
"This consequently makes the development of low carbon generation cheaper for both investors and consumers, and it is suitable for all forms of low carbon generation".
Michael Fallon, the energy minister who also received the Which? letter, said at the opening of RenewableUK's Global Offshore Wind conference in Glasgow on Wednesday: "Offshore wind isn't just an energy sector, it's a growth sector - and it's vital that as the offshore wind sector grows, it strengthens its contribution to economic growth and creating jobs in the UK - more than 6,000 people are directly employed in the industry, with a similar number of indirect jobs in the supply chain."