Labour considers major shake-up of renewables scheme amid fears over rising energy costs

Giving evidence to the committee, Energy Minister Michael Shanks said the Government was seeking a more ‘coherent’ approach to the energy system.

The issue of curtailment – where wind farms are paid not to generate because the grid is unable to carry power to where it is needed – has come under particular scrutiny.

At last week’s Budget, Chancellor John Healey said that the Government’s priority was “first and foremost cheaper energy”.

He went on to say that new offshore wind projects would need to demonstrate that they would lower bills in order to be approved.

He said: “There’s no sense building power that can’t connect and then paying to switch it off. We will take that approach into our next renewables auction, only buying projects that can lower bills while strengthening our energy security.”

The Contracts for Difference (CfD) scheme sees generators agree a ‘strike price’ for each unit of energy.

If the wholesale price is above this amount, the generator pays back the difference.

If it is below, the generator receives a subsidy to make up the shortfall.

CfDs are seen as a way of ensuring electricity costs are less volatile.

Mr Shanks said the system had proved successful and had been widely imitated.

He said: “The CfD scheme has been mirrored now across the world as the model, partly because the two-sided nature of it means there’s investor certainty in revenues, but we also as consumers benefit if the wholesale price goes beyond that.”

But he said that there would be a pause before AR9 – the 2027 auction in which generators will bid for support contracts – while the payment scheme was examined.

He said: “We do now want to pause before AR9 and look at whether we need some more significant changes to the contracts for difference scheme to make sure they work for the consumers of the country.”

Mr Shanks, the MP for Rutherglen, told the committee that an updated grid was essential.

At present, many generators are remote, meaning more transmission is needed to carry the power to where it is needed.

He said: “I live next to two of Europe’s biggest onshore wind farms.

“They are fantastic pieces of infrastructure, but if we were logically designing a system, we may not have placed quite so many wind farms quite so far away from centres of demand.”

He said a key point of the Government’s plans for the energy system was “to more coherently look at the opportunity across the country”.

He said it wasn’t the fault of the developers that the “generation isn’t getting to where it needs to get to”.

“That’s the fault of the grid,” he said.

He went on: “The grid is hugely resilient, but it is not where it should be.

“And, if we’re honest, decades ago we should have woken up to the fact that the grid was not being invested in at the scale it should have been.”

The Government is understood to be planning on building up the renewables fleet in the upcoming wind power auction while ensuring affordability and value for money for bill payers.

It will also focus on ensuring the grid is ready to dispatch the renewable energy.