The government has boosted its commercial intelligence since its failure to accurately forecast spending resulted in cuts to subsidies for solar, biomass and wind energy projects, according to government officials.
A cap on the budget for renewables, known as the Levy Control Framework (LCF), was set by the government in November 2012 to limit the impact on consumer bills. The LCF would peak at £7.6bn in 2021, with a 20% buffer each year to allow for temporary fluctuations in wholesale electricity prices. But, by April 2015, expenditure was forecast to reach an estimated at £8.6bn.
The projected rise prompted the government announced a series of cuts to subsidies, including the early closure of the renewables obligation for large-scale solar PV and scrapping pre-accreditation under the feed-in-tariff (FIT) scheme. The cuts have been widely criticised by environmental campaigners and businesses for undermining investment in the transition to a low carbon economy.
An investigation by the National Audit Office (NAO) concluded that poor governance at the energy and climate change department (Decc) for the delay in updating forecasts. An internal report by Tom Kelly, non-executive director of Decc, produced in 2015 but published last week, came to a similar conclusion.
Kelly’s report states: ‘There seems to be an incomplete feedback loop between the theory of policy formulation and the monitoring of reality.’
The lack of ongoing assessment of the assumptions underlying the forecasts ‘represents, to varying degrees, weaknesses in the original governance arrangements that were not rectified over time, a lack of transparency and a tendency to group think,’ he wrote.
Jeremy Pocklington, director general, markets and infrastructure group in the Department for Business, Energy and Industrial Strategy (BEIS), admitted to MPs on the parliamentary Public Accounts Committee that Decc officials had not prepared for the simultaneous impact of the fall in the wholesale price of electricity, a surge in demand for renewables subsidies and technology improvements leading to more energy being produced.
Decc merged with the business department to form BEIS earlier this year and steps have been taken to improve forecasting. Pocklington said these include producing quarterly forecasts and carrying out regular reviews of the assumptions underlying the forecasts.
The forecasting methodology used by BEIS had been independently audited and a multi-disciplinary team had been assembled in the department to monitor forecasting, he said. The department was also canvassing external consultants and academics to get a wider range of opinion, he added.
The Levy Control Board, which comprises officials BEIS and the Treasury, now meets quarterly, ahead of forecasting, Pocklington told MPs. The board did not meet at all between November 2013 and July 2015, a fact that was heavily criticised by the NAO.
In March, the parliamentary energy and climate change committee criticised the government for lack of transparency on policy making, including the cuts to renewables subsidies, which it said had spooked investors.