Committee of Public Accounts


Press Notice No. 6 of Session 2005-06, dated 15 September 2005


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 Britain's electricity from renewable sources by 2010, with the aspiration of doubling this share to 20% by 2020. The aims of these levels of renewable generation are to make a significant contribution to national and international targets for reducing carbon dioxide emissions, while improving the diversity and security of the UK's energy supplies. In the period to 2020, however, the contribution of renewables to these aims could be offset by the planned closure of most of the UK's existing nuclear power stations.

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.


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