LONDON (Reuters) - A new system devised to attract investors to spending money on connecting Britain’s offshore wind farms is too generous and does not offer a good deal for consumers, a parliamentary committee said on Monday.
The government wants a huge fleet of offshore wind farms to produce between 8 percent and 15 percent of Britain’s electricity by 2020 to reduce carbon emissions.
All wind farms built at sea need to be connected to the onshore grid by expensive subsea cables.
To ensure that the transmission cables are built, energy regulator Ofgem and the government’s Department of Energy and Climate Change have put in place a licence tender system whereby investors receive returns of 10-11 percent.
The Committee of Public Accounts, however, was critical of the system and described it as “extremely generous”.
“Not only is it unlikely that this new licensing system for bringing electricity from offshore wind farms onto the national grid will deliver any savings for consumers, it could well lead to higher prices,” committee chairwoman Margaret Hodge said.
Licencees will receive a total of about 17 billion pounds through the system, a cost that will eventually be passed on to consumers through electricity bills.
The committee interviewed representatives from the government, the regulator and the electricity industry to assess the new regime.
“We have not seen convincing evidence to show that there will be savings for consumers from this scheme compared with potential alternatives,” the committee said.
The politicians recommended that the regulator should consider imposing a system linked to retail prices and to request that investors disclose actual returns they make from operating the cables.
The committee said that the government and regulator should also analyse whether 20 years of guaranteed income is beneficial or whether shorter licence periods are necessary.
It was also concerned about competition in the offshore wind transmission market because four out of six licences that have already been issued were won by one company, Transmission Capital Partners.
“The department and the authority (regulator) must also ensure that the offshore electricity transmission market remains competitive and does not become an oligopoly,” the committee said.
Reporting by Karolin Schaps; Editing by David Goodman