Windfarm electricity bill warning from MPs

The public accounts committee said deals worth £17bn 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, it added

The Department for Energy and Climate Change (DECC) hopes that offshore windfarms can provide up to 15 per cent of electric needs by 2020.

But that will require around £8bn of investment in transmission infrastructure such as platforms, cables and substations.

Not only is it unlikely that this new licensing system for bringing electricity from offshore windfarms onto the national grid will deliver any savings for consumers, it could well lead to higher energy prices. Committee chairman Margaret Hodge

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 to 11 per cent on the initial licences “look extremely generous given the limited risks”.

Penalties for failing to provide the transmission facilities are limited to 10 per cent of expected annual income, and the firms do not have to share any windfalls from refinancing.

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‘Higher prices’

Committee Chairman Margaret Hodge said: “Not only is it unlikely that this new licensing system for bringing electricity from offshore windfarms onto the national grid will deliver any savings for consumers, it could well lead to higher electricity 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.”

The Labour MP said DECC and the gas and electricity markets authority had wanted to create a “competitive market” for offshore transmission, but the first six licences were awarded to just two firms – Transmission Capital Partners and Macquarie.

A DECC spokesman said: “The offshore electricity transmission regime harnesses competitive forces to drive value for money for consumers. Potential licence holders bid against each other on price in the context of the licence terms.

“With six licences now granted, now is the right time to re-examine some of the terms. We therefore welcome Ofgem’s current consultation on them.

“In addition to savings through competition, last year’s offshore transmission co-ordination project identified a set of measures that could deliver up to £3.5bn in further savings.