The Guardian: Department of Energy admits arithmetic gaffe in legislation draft

The Department of Energy and Climate Change (DECC) has admitted to an embarrassing gaffe in key legislation before parliament and will come under fire again on Thursday from the National Audit Office over another subsidy issue.

The problems come at a difficult time for the government’s low-carbon energy programme with investors complaining that the electricity market reform (EMR) and other policy changes have undermined investor confidence, while some Conservative backbenchers are anxious about escalating costs.

The error in an EMR document revolves around the level of subsidy given to solar power, and consultants say it could have cost consumers more than £100m if it had not been spotted.

Read story on the Guardian:

The EMR’s Allocation Framework published this week showed the subsidy allocated to large-scale solar generation for power plants that become operational in 2018 to 2019 had been wrongly inflated by 10% to £110 per megawatt-hour.

In previous publications the solar subsidy had been the equivalent to £100/MWh and the mistake could have added £140m to consumer energy bills, said Cornwall Energy, an advisory firm.

The electricity market reform bill was laid before parliament with the error unnoticed and could have been drafted into law until DECC was made aware of the mistake by The Guardian.

“Unfortunately there was an error made in the publication of the Allocation Framework. The solar strike price for 18/19 should have been £98.09 in 2011/12 prices – equivalent to the £100 in 2012 prices published in the Final Delivery Plan,” said a spokeswoman from the DECC. She added that the energy department was working to resolve the issue.

Greg Barker – the minister for climate change – visiting a solar trade fair in London on Wednesday, also acknowledged the error but declined to comment on how it could have happened.

The UK is in the early stages of rolling out electricity market reform (EMR), aimed at promoting low-carbon energy generation by allocating generous subsidies to wind power, solar, biomass and nuclear to encourage investment.

The main pillar of the new energy bill is the introduction of a contracts-for-difference tariff, known as CfDs. Under a CfD, renewable energy generators will sell their energy on the wholesale market as usual. They will then, however, receive subsidies that will top up their earnings to a set price per mega watt hour, known as a strike price. Energy generators will be guaranteed a CfD for the first 15 years of their power plants’ life. These subsidies will be passed onto the consumer through retail energy bills.

CfDs have been criticised for being too generous. An offshore wind farming joining the grid in 2015 will receive a strike price of £152.04/MWh, for instance. In contrast the spot price for energy delivered on Thursday is £34.99/MWh on the wholesale market.

In the meantime, DECC is preparing itself for further flak when the National Audit Office publishes a report on the award of eight contracts fast-forwarded for subsidy under a Final Investment Decision Enabling for Renewables scheme, FIDeR. The programme has been attacked for failing to include an expected support mechanism for a coal-to-biomass conversion initiative for the Drax power station in north Yorkshire which led to a 15% slump in the Drax share price.

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