SIXTH REPORT: DEPARTMENT OF TRADE AND INDUSTRY:
RENEWABLE ENERGY (HC 413)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said
today:
"Renewable energy comes at a price. The government's target is to
have 10% of our electricity generated from renewable sources by 2010. But, by
then, the scheme for rapidly expanding the supply of renewable energy, the Renewables Obligation, will be adding £1 billion a year to
electricity prices and will have cost consumers at least £5 billion. The
expansion of distribution and transmission capacity required to meet the 10%
target will add another £1.5 billion - also to be shouldered by consumers.
Consumers are providing a massive subsidy to the renewables
industry. But, unlike public expenditure, this subsidy does not receive annual
scrutiny by Parliament. This is unacceptable.
"The future of renewable energy is uncertain. The government
certainly needs to act in two crucial areas. It must start to target subsidy at
the technologies which need it in order to have a genuine prospect of becoming
commercially viable. The government will also fail to meet its long-term
emissions targets unless it gives serious thought to how it is going to find
enough green energy to fill the gap left when the low-carbon energy generated
by current nuclear power stations is no longer available."
Mr Leigh was
speaking as the Committee published its 6th Report of this Session, which
examined initiatives put in place by the Department of Trade and Industry to
promote the generation of electricity from renewable sources.
The Government's
energy policy and wider climate change programme aims to increase the
proportion of electricity generated from renewable sources, such as wind, wave
and biomass. The Government's target is to supply 10% of
To achieve the
rapid expansion in renewable energy required by the 2010 target, the Department
of Trade and Industry (the Department) introduced in April 2002 the Renewables Obligation. The Obligation requires all
electricity suppliers to source a growing percentage of their sales each year
from renewable sources. The scheme pushes up the demand for renewable energy,
thus increasing the revenue that generators can earn which in turn encourages
developers to invest in new generating capacity. Electricity suppliers pass the
higher cost of purchasing renewable electricity on to consumers. The Renewables Obligation will cost consumers £1 billion per
annum by 2010 rising to £1.5 billion per annum by 2015.
The Renewables Obligation is more expensive than the other
mechanisms currently being used under the Climate Change Programme to reduce
carbon dioxide emissions. These include promoting energy efficiency through the
Climate Change Levy, which is paid by non-household consumers of energy, and controlling
the carbon dioxide emissions of key industries through emissions trading
schemes. The expense of the Obligation reflects the high cost of renewable
generation and poor targeting of the scheme - around a third of the funds
exceed the support needed by generators. The Department hopes that funding
investment in renewables now will reduce future
generating costs and thus the cost of each tonne of carbon dioxide saved. It
has not established measures or targets to track the industry's progress in reducing
costs, however, and consumers will not necessarily benefit if generating costs
do fall.
The Department
is working to remove barriers to the achievement of the 2010 target, but this
work is imposing further financial and non-financial burdens. Support to
develop new and emerging renewables technologies and
the cost of upgrading the electricity grid, so that it can carry the renewable
energy generated, is likely to total £2 billion or more in the period to 2010.
New planning guidelines, introduced in 2004, seek to increase the proportion of
successful planning applications for renewable sites and will reduce the
influence of local communities on planning decisions.