£2 billion underestimate by civil servants – as costs added to household energy bills

The report Upgrading the electricity transmission network reveals a wildly inaccurate Ofgem forecast that annual grid constraint costs would fall from £121.7 million in 2015 to zero by 2023-24.  In fact these costs increased fifteen times over to £1.9 billion in 2025-26. Constraint costs are added to household energy bills, rather than being funded through public expenditure.

The lack of a clear plan for how to successfully manage the transmission network, and flawed assumptions made by the Department for Energy Security & Net Zero (DESNZ), National Energy System Operator (NESO) and Ofgem are highlighted throughout the report, which assesses value for money from government expenditure.

A series of scathing conclusions include that: ‘DESNZ has allowed renewable electricity generation to expand faster than the grid, which has led to increased constraint costs’.  In addition ‘DESNZ lacks a clear policy on how decisions about the scale, pace and location of generation should account for network capacity or constraint costs’.

John Williams, former chair of Heriot Community Council, said: “A series of catastrophic errors have left consumers worse off while still not fixing any of the problems with our electricity network. In the Scottish Borders the problems are particularly acute as we are the region most affected by the onslaught of mass development.

“Whilst I was dealing with multiple wind farm applications and subsequent public inquiries over the last 20 years or so, we as a community raised time and again the lack of proper grid structure to take the generated energy from Scotland to the main urban areas of the UK. We were told every time that grid constraints were to be excluded from the planning process. To see an official acceptance of this as a catastrophic error after all these years is welcome – but also very revealing about the incompetence underlying planning policy over the last 20 years.

“The cost is not just higher energy bills but devastation of the natural landscape, a ruinous impact on wildlife and crippling the potential for sustainable tourism in the region. It is staggering that all these windfarm contracts were handed out to big energy firms, but nobody in government considered how the electricity network would cope.”

In the Scottish Borders, there are 53 windfarms either already in operation, under construction, or in the planning system. If all developments were approved there would be 774 turbines in the region, with capacity to generate up to 1,909 MW of energy on windy days, equivalent to 38 per cent of Scotland’s entire energy demand.

The lack of scrutiny of project costs by both DESNZ and Ofgem is also highlighted by the auditors: ‘Ofgem has adapted its regulatory approach to support rapid expansion of the grid, reducing its emphasis on detailed scrutiny of construction costs’.

This reduced scrutiny allows major energy companies to propose grid expansion schemes which may prove advantageous for shareholders, but do not necessarily offer best value for money for the taxpayer.

NAO points out that DESNZ has not evaluated alternative options for expanding grid capacity. This omission is extraordinary, given that the UK government plans to spend over £70 billion expanding grid capacity by 2030 and a further £89 billion after 2030, although some experts predict the final cost will be far higher.

A Strategic Spatial Energy Plan to build power generation closer to demand is not expected until 2028, while a comprehensive plan for energy infrastructure may not be in place until 2050, the report states.

In the meantime, the Scottish government is offering planning permission to windfarms and the UK government is providing subsidy contracts, in the full knowledge that the additional electricity produced cannot reach consumers for many years.

NAO is calling for ‘greater transparency’ from DESNZ, Ofgem and NESO in future. In addition it recommends that ‘Delivering upgrades at lowest cost to consumers will require stronger oversight of delivery, transparent monitoring of progress, and sufficient regulatory capability to scrutinise costs and the operation of incentives.’

John Williams continued: “The shambolic approach to energy generation in this country has led to the worst of all possible worlds – desecration of our beautiful countryside, massive over-supply, energy being discarded because it can’t be used and huge incentives for energy giants to keep targeting Scotland.  This chaos has to stop. If the Westminster government cannot get a grip on energy policy, we call on the Holyrood government to use its planning powers to veto further development.”