Officials 'significantly underestimated' cost of green energy schemes

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Consumers will be hit with higher bills because officials "significantly underestimated" the cost of green energy schemes,  the Commons spending watchdog has found.

As a result of the failings in Whitehall, the costs are likely to add around £110 to the typical household's annual energy bill in 2020, £17 more than expected.

The Commons Public Accounts Committee (PAC) found the Government's management of the levy control framework, which is supposed to cap the cost of the schemes, suffered from "a lack of transparency, rigour and accountability".

The cross-party panel said the problems with forecasting the cost of the schemes were the result of "a culture of optimism bias" in the Department for Business, Energy and Industrial Strategy, which took over from the old Department for Energy and Climate Change.

The framework sets yearly caps on the forecast costs of the renewables obligation, feed-in tariffs, and contracts for difference - schemes funded through levies on energy companies and ultimately paid for by consumers in their energy bills.

The committee's Labour chairwoman Meg Hillier said: "Bill-payers deserve to know whether or not the energy schemes they fund represent good value.

"The Government has failed to meet its commitment to report annually on the impact these policies are having on bills. Current arrangements just aren't good enough.

"At the same time, the Government expects the cost of levies to continue to bust the budget, meaning customers will pay more than expected.

"This is a result of poor forecasting and further evidence of excessive optimism in the implementation of energy policy.

"Government must take action to address this and also ensure customers can see clearly what they are paying towards existing and future schemes through their bills."

A National Audit Office report in October found that the £7.6 billion cap on subsidies for low-carbon electricity set by the Government for 2020/21 will be breached by more than £1 billion by the end of the decade.

The PAC found officials "failed to prepare properly" for the possibility that forecasts were wrong and the Treasury had not provided sufficient oversight.

A review of the framework being conducted by the Government needs to take action to avoid it becoming "increasingly ineffective at controlling costs to consumers" and support investor confidence, the MPs said. 

A spokeswoman for the Department for Business, Energy and Industrial Strategy (BEIS) said: "The Government is committed to helping ordinary working people keep more of what they earn and supporting households with the cost of living.

"The strong, decisive action we took reduced projected costs by over half a billion pounds to protect people's household budgets and ensure value for money while delivering more environmentally friendly energy."