The OBR has projected that the total cost of Contracts for Difference (CfDs), the Renewables Obligation (RO) and the Feed-in Tariff (FiT) will reach £10.9 billion in nominal prices in 2020/21.
The LCF budget for that year is set at £7.6 billion in 2011/2012 prices; roughly £9 billion in nominal prices, according to investment firm Jefferies. It means the LCF is still set to be over budget by around £1.9 billion.
The OBR’s previous forecast in July 2015 put the total cost of subsidies covered by the LCF in 2020/21 at £11.5 billion. In response to the projected overspend the government announced the early closure of the RO to onshore wind and solar and reduced the rates for the FiT.
The new numbers from the OBR suggest the changes will save £600 million in the final year of the LCF, but only £300 million over last four years.
Analysts at Jefferies said: “This still leaves the LCF with a large overspend being projected. The government may therefore need to take additional measures to rein in costs.”
Earlier this week the chancellor George Osborne announced in the budget that £730 million would be made available for CfD auctions over the course of the current Parliament. £290 million will be available in the first auction, which is due to take place before the end of this year.
At the beginning of the month the Energy and Climate Change Committee called on the government to make a decision on how large the LCF budget will be beyond 2020, saying the “sudden and unexpected” cuts to subsidies had left investors “spooked”.
Read Utility Week’s analysis on the Levy Control Framework here. Please note: the cost referred to in this article are in 2011/12 prices.