Jan 14 2013
Families could face higher electricity bills as a result of "shocking" blunders in awarding new offshore wind farm contracts, an influential group of MPs has warned.
The Public Accounts Committee said deals worth £17 billion agreed with firms for transmitting electricity to the mainland were too generous. The Government had failed to learn lessons from poor PFI contracts and the costs would eventually be passed on to consumers.
The criticism came in a report on the "elaborate" new system that licences companies to operate assets bringing power onshore.
The Department for Energy and Climate Change hopes that offshore wind farms can provide up to 15% of electric needs by 2020. But that will require around £8 billion of investment in transmission infrastructure such as platforms, cables and substations.
The committee said the long-term licences awarded so far "appear heavily skewed towards attracting investors rather than securing a good deal for consumers".
The companies are guaranteed an RPI inflation linked income for 20 years regardless of how much the infrastructure is used, and the estimated returns of 10-11% on the initial licences "look extremely generous given the limited risks".
Penalties for failing to provide the transmission facilities are limited to 10% of expected annual income, and the firms do not have to share any windfalls from refinancing.
Committee chairman Margaret Hodge said: "Not only is it unlikely that this new licensing system for bringing electricity from offshore wind farms onto the national grid will deliver any savings for consumers, it could well lead to higher prices.
"Indeed the terms of the transmission licences appear to have been designed almost entirely to attract investors at the expense of securing a good deal for consumers.
"Licensees and their investors are provided with a guaranteed income, increasing annually in line with RPI, for 20 years regardless of the extent to which the assets are used. Future payments to licensees are estimated at around £17 billion, and this will ultimately be funded by customers who could well end up paying higher electricity prices."