Revealed: Brown’s £1bn power windfall

By Juliette Jowit |

Rising energy prices are on course to net the government a windfall of over £1bn thanks to a little-known scheme designed to promote the development of renewable energy.

The disclosure of the substantial sums made through the scheme comes as Gordon Brown has been piling pressure on power companies to plough some of the profits they have made through increased prices into helping cash-strapped consumers.

The government has faced backbench calls to impose a windfall tax on energy firms and has been criticised for rejecting plans for a one-off cash payment to householders to help pay for steep increases in fuel bills.

But after the Guardian revealed details of the government’s own sizable profits through energy sales last night, there were calls for the windfall sums to be used to reduce householders’ energy bills.

The government profits come from a scheme set up in the 1980s to support renewable energy projects by guaranteeing to pay developers building wind, biomass and other non-fossil fuel generation plants a fixed price for their electricity for 15 years.

During the first decade of the so-called Non-Fossil Fuel Obligation scheme, it ran at a loss, paid for by consumers, but over the last six years rising electricity prices have allowed the government to cash in on the energy contracts at a substantial profit.

In total ministers have now taken payments of £585m out of the fund, and have another £218m in the scheme’s account, which is held by the energy regulator, Ofgem.

This year the scheme is expected to make £200m, or more than £7 for every household in the UK.

Last night Charles Hendry, the Conservative shadow energy minister, accused the government of using the scheme as a “stealth tax” and warned it would further damage public confidence in environmental measures.

“If you’re going to tax environmental issues that money should be used for very specific projects for [the] environment, or else to help reduce taxes on families, but this seems to be going into a general pot,” said Hendry. “Certainly it would be in the spirit of it if the money was being used to deal with insulation and energy conservation.”

Energy companies have also complained about the government taking money which they feel should be paid back to customers or used to support new renewable energy.

“The money that’s accumulated was collected with the purpose of achieving environmental ends, and in this regard particularly achieving renewable energy targets, so we think it should be used for that purpose,” said Laura Schmidt, spokeswoman for the Association of Electricity Producers.

The Renewable Energy Association said: “That money is effectively raised for renewables and it isn’t right it should be used not for renewables.”

The government is expected to announce a package of measures next week under which power companies will agree to help impove the energy efficiency of poorer households but it is likley to face difficult questions over why it is not using some of its own energy windfall to help the fuel poor.

Ed Matthew, part of a powerful coalition of lobby groups which will publish a charter on fuel poverty on Monday, said the government’s windfall should be spent on speeding up work to improve insulation in the poorest homes “over and above” what is already planned.

“This is a question of life and death: 20,000 to 40,000 people die every year because of cold in this country, and energy efficiency is the only permanent solution,” said Matthew, head of UK climate for Friends of the Earth. “Huge investment is required and the money has to come partly from companies and it has to come directly from government itself if we’re going to get anywhere close to the kind of investment required to solve the problem.”