UK running out of money to pay for clean energy

The government is struggling to pay for new clean energy supplies which could result in a rise in household bills or a major cut in investment in renewable technologies.

The Department of Energy and Climate Change (DECC) has already overspent its budget to support renewable energy projects over the next five years by £1.5bn, senior sources said.

Unless ministers increase the budget still further, the UK could struggle to meet legally binding commitments to reduce greenhouse gas emissions.

Under European Union targets, the UK must produce 15% of its energy from renewable sources by 2020 and is one of a small number of big member states to be judged on track to meet all of its energy and climate commitments by the European Environment Agency.

A Whitehall source told the Guardian the projected overspend on renewables had become the single most important problem for the ministry as it tried to balance its books. Sorting this out is a number one priority but it is a dilemma. It really is ‘answers on a postcard’ time,” the source said.

Under a £7.6bn-a-year scheme set up by the coalition government, households which generate renewable energy are promised a premium on top of market price for electricity they provide. The subsidy is paid for by a levy on household energy bills which was supposed to be capped.

But as the price of oil and gas has declined and the number of renewable installations has grown, civil servants have struggled to keep within the scheme’s budget.

Spending limits on the aggregate amount levied from consumers, known as the levy control framework, have been breached three times in as many years by more than 20%.

Separately, the government has been accused of “reckless and wasteful” management of renewable energy subsidies in a report released on Thursday by the right-leaning thinktank Policy Exchange. It has called on ministers to maximise household energy efficiency and to focus carbon-cutting efforts on mature technologies such as onshore wind to tackle climate change.

The report claims that “green” policies have added about £60 to the average consumer energy bill in the past five year.

Energy profits have added £70 to rising bills and accounted for about £77 of average household dual fuel costs in 2014, while climate policy costs accounted for £89, it claims.

The report sets out a “greener, cheaper” proposal which would keep targets to cut greenhouse gases but ditch or avoid other “market-distorting” goals including a 2020 renewable target and a 2030 goal to slash power sector emissions.

It calls for a revamp of the government’s flagship “green deal” policy, which aims to improve energy efficiency and reduce bills, as the cheapest way to cut carbon emissions.

The report has been criticised by Lord Turner of Ecchinswell, the former chairman of the Committee on Climate Change: “The government should certainly strive to achieve decarbonisation at the lowest possible cost, but its focus must be on costs over the medium and long term. The Policy Exchange report, by contrast, is in danger of taking too short term an approach.

“Investment cycles in energy are typically many decades in length, making forward-looking policy crucial. Building a robust clean energy system now will insulate people against volatile natural gas prices now and in the future.

“The cost of clean energy has already been increased by policy tinkering – so it is somewhat ironic that a report purporting to advocate lower prices should be proposing yet more tinkering.”

A DECC spokesman said: “Reducing energy bills for hard-working British families and businesses is this government’s priority. We’ve already announced reforms to remove subsidies for onshore wind and that work to make sure bill payers are getting the best possible deal is going to continue.”