Renewables levy cap on consumer energy bills ‘exceeded by £1bn’

Former energy ministers have contributed to an overspend of more than £1bn on renewable power subsidies that consumers will be forced to pay for, a government report has said.

The review by the Department for Business, Energy and Industrial Strategy, published on Friday, says “political unwillingness” to curb support for solar and wind power projects has contributed to the cap on green energy subsidies being breached.

The report concluded that the failure to stay under the cap was partly a result of “group think” at the department and its external consultants. It also blamed a lack of transparency, forecasting being left to junior staff, and “insufficient” monitoring that meant the overspend wasn’t detected until “too late in the day”.

Those weaknesses were compounded, it said in an apparent reference to the then Liberal Democrat energy secretary Ed Davey, by “a political unwillingness to withdraw popular schemes even when, as has happened with RO and FIT [two of the renewable energy subsidy schemes], a surge in demand is threatening the overall budget”.

The Levy Control Framework caps the amount of money that the government can levy each year on household energy bills to pay for a series of renewable energy subsidy schemes.

The cap was set at £7.1bn for 2020/21, but government officials warned last year it was on track to hit £9.1bn because so much green energy was being deployed. That projected overshoot prompted an internal review in 2015 by the then Department of Energy and Climate Change (Decc) on lessons to be learned from its handling of the Levy Control Framework.

Davey said it was “nonsense” to suggest he was unwilling to act, and told the Guardian the department had taken strong action under his leadership to meet the cap. He added that the projected cost to consumers was within the “headroom” built into the Levy Control Framework.

Robert Ede, an energy analyst at the Whitehouse Consultancy, said: “This report hints at the ministerial tensions between Ed Davey and his Conservative colleagues over the rate of renewables deployment – with the Liberal Democrats unwilling to row back from policies that were seen as vital for meeting EU targets.

“It also confirms that Decc were constantly playing catch-up, as the costs of renewables plummeted worldwide.”

The report, written last year by then Decc non-executive director Tom Kelly, comes as MPs on the public affairs committee prepare to quiz current and former officials next week on the Levy Control Framework. Last month the spending watchdog, the National Audit Office, said the government’s “poor” handling of the cap meant it had not delivered value for money.

Kelly said that one of the consequences of the mishandling of the cap would be to harm the government’s ability to support renewable energy in the next few years.

He wrote in the report: “Because the current LCF limits have been breached, any new low carbon initiatives will be impacted before 2021. This is likely to have a particular effect on the Contracts for Difference scheme, seen as the long-term support mechanism for renewable energy in this country.”

The report acknowledged that management of the cap had since improved at the department, and set out a series of recommendations for the future including giving one person responsibility for the whole of the Levy Control Framework and making them issue quarterly reports.

The government said it had accepted all the recommendations, which had led to a “significant improvement” in its forecasting and management of the scheme.