National Audit Office confirms review of LCF is underway

The National Audit Office (NAO) has confirmed that a review of the Levy Control Framework and how effectively it has met its objectives is currently underway.

The government spending auditor confirmed the investigation earlier this week, noting on its website that the review will update its work from 2013 on the subject and is due to be published before the summer.

This is particularly timely considering that energy secretary Amber Rudd is expected to legislate for the Committee on Climate Change’s fifth carbon budget – including the highly anticipated extension of the LCF framework beyond 2021 – by that date.

Last month a spokesperson for the NAO told Solar Power Portal that the LCF was once again “on its radar”, following repeated calls from select committee chairman Angus Macneil for additional information on the subject.

Central to the review is to uncover the reasons behind changes in forecast expenditure and how the Department of Energy and Climate Change governs and reports arrangements within the framework.

Government officials have heavily scrutinised the way in which DECC’s subsidy expenditure estimates rose dramatically between March and May 2015, ultimately leading to Rudd’s big energy reset speech in November 2015 and a significant overhaul of renewables subsidies.

The NAO’s 2013 review, published in November of that year, concluded that the LCF had proven itself to be “valuable tool” but warned DECC that greater quality assurance over its forecasting models was required and that an over-allocation of CfDs would lead to a breach of its spending cap if the wholesale price fell.

Yesterday DECC confirmed that the DONG Energy’s Hornsea 1 offshore wind farm was given its final investment decision, with 1.2GW of offshore wind capacity to be added in three phases between 2019 and 2021.

That project received a strike price of £144/MWh under the FIDeR mechanism – a pre-cursor for CfDs. DECC expects the lifetime support cost of Hornsea alone to be around the £4.2 billion mark at 2013/14 prices, however this is widely expected to increase with the wholesale energy price all but certain to continue to fall.

This goes alongside a premature closure to the Renewables Obligation for ground-mount solar projects, solar being amongst those technologies excluded from participating in future CfD rounds under this parliament and domestic solar feed-in tariff expenditure being capped at £10 million per year under the new regime.

While the NAO’s review is expected to be published in the summer it cannot be made public while government is in recess. If the investigation is therefore delayed or takes longer than expected, its publication will be pushed back until the 2016/17 parliamentary session opens.

News of an investigation into DECC’s handling of the LCF comes in the same week that UK solar developers took a case against it over the early closure of the RO announced in 2014, which the developers claim was an objectionable retrospective action the department justified by stating that budgetary pressures within the LCF warranted it.