Investigation called into £175m subsidy for high polluting "diesel farms"

The government is facing calls for an urgent investigation into how companies were awarded more than £175m in subsidies to build new, highly polluting "diesel farms" to provide the UK with backup energy generating capacity from 2019. Also benefiting from the subsidies are coal-fired power stations . The energy generation auction, overseen by the National Grid, saw bidders of gas, nuclear and diesel-fired plants agree a new lower price of £18 per kilowatt-year, which was welcomed by Andrea Leadsom, Energy Minister, who argued that the awards reduced costs for homeowners. However, critics are accusing the government of rewarding intensive carbon dioxide emitters, just as the UK has committed to lower carbon emissions at the UN climate change talks, and are calling for reforms to the "outdated" capacity market.

The government is facing calls for an urgent investigation into how companies were awarded more than £175m in subsidies to build heavily polluting “diesel farms” to provide the UK with backup energy generating capacity.

Critics said an energy generation auction overseen by the National Grid had descended into a farce by rewarding intensive carbon dioxide (CO 2 ) emitters, just as ministers committed Britain to lower carbon emissions at UN climate change talks in Paris.

The Grid confirmed on Friday morning that it had secured the 45 gigawatts (GW) of back-up power generation it wants to meet peak periods of electricity demand starting in 2019. Bidders of gas, nuclear and diesel-fired plants agreed a price of £18 per kilowatt-year (8,760 kilowatt hours), slightly lower than achieved during the first auction last year.

The Grid published details on Friday showing energy companies had won contracts to build 650MW of new diesel-driven capacity at a cost of about £175m.

The cost was estimated by Sandbag, an organisation which campaigns to reduce CO 2 emissions. “The UK’s [power auction] is a complete shambles. We’re spending money on all the wrong things and as a result the right things are not happening,” said Bryony Worthington, a Labour life peer and Sandbag founder.

“There should be an urgent investigation into why it’s gone so badly wrong with reforms introduced in the energy bill, which will arrive in the Commons in January.”



The Renewable Energy Association, a lobby group, supported the call, saying firms offering storage and other greener technological solutions were losing out. Frank Gordon, senior policy analyst at the REA, said: “This year’s capacity market auction underlines the problems with the policy – that it does nothing to support the move away from higher carbon to clean energy, and it does not adequately consider value for money.”

Gas-fired power stations won half of the contracts on offer but no energy companies put forward plans to build new gas facilities as the government had hoped.

There were also deals for an unspecified number of coal-fired power stations, despite promises from the government that coal would be phased out as too polluting at the start of the next decade.



Amber Rudd, the energy secretary, has promised to reform the auction scheme but one of her ministers, Andrea Leadsom, welcomed this year’s awards, arguing they reduced costs for homeowners. “This result represents a good deal for [energy] customers. Fierce competition in the capacity market has driven down costs, meaning future capacity has been secured at the lowest price possible.”

However, Lisa Nandy, the shadow energy secretary, said the government needed to go back to the drawing board. “This policy has failed in its purpose of attracting investment in new power stations. Instead hundreds of millions of pounds will be paid out to big energy companies to keep open old power stations that would have been open anyway, and to diesel farmers to use ultra-polluting generators, and it is families and businesses who will pick up the tab through their energy bills.”

Dustin Benton, head of energy and resources at the Green Alliance thinktank, said: “Amber Rudd deserves praise for deciding to phase out coal, and it’s now clear that she needs to reform our outdated capacity market.

“Continuing to give hundreds of millions of pounds to coal is perverse and unnecessary. The UK can keep the lights on without coal if we get rid of the capacity market’s bias against demand response and push ahead with new energy efficiency policy.”