The Treasury is paying less than it expected for renewable energy, according to the Energy & Climate Intelligence Unit (ECIU).

Under the UK Government’s preferred Contracts for Difference (CfDs) mechanism, renewable energy generators receive a top-up payment from the Treasury if market prices for electricity fall below an agreed strike price.

But the surge in electricity prices has meant ministers have had to pay out 25% less than expected during the current financial year, saving the Exchequer some £300 million.

The ECIU pointed out that fluctuating wholesale prices have “very little effect” on the overall price paid by users for low-carbon generation because if the wholesale price is low then a smaller amount is paid directly for electricity and more through the CfD, but if the wholesale price is high then more is paid directly and less through the CfD.

‘Unanswerable’ case

Jonathan Marshall, ECIU Head of Analysis, said: “With Government acknowledging the need to speed decarbonisation to meet carbon budgets, there is obviously a case for Treasury using the windfall in October’s financial Budget to support more low-carbon contracts (if they still need supporting at all).

“But with ministers including Michael Gove supporting a trajectory to net zero emissions by mid-century, we are clearly in a very different political world than when George 'thus-fast-and-no-faster' Osborne tightened the purse-strings as the cost of renewables proved more than forecast.

“And with onshore wind now cheap enough that it will reduce energy bills rather than adding to them were Government to give it a route to market, the case for Philip Hammond relaxing the reins and letting renewables investment loose could prove unanswerable.”

> Find out more about the ECIU here