Costs of £1bn a year to fund renewables projects were not outlined in the Chancellor’s Budget
Households face paying billions more in energy bills to fund green subsidy costs that were not outlined in Rachel Reeves’s Budget last week.
The Office for Budget Responsibility (OBR) revealed in its latest economic assessment that £1bn a year will be added to household energy bills to fund Ed Miliband’s next auction for renewables projects, known as “allocation round 7” (AR7).
Costs of the scheme were not outlined in the Chancellor’s Budget. Instead, they were revealed in a footnote to the OBR’s Fiscal Outlook report released on the same day.
The revelation will cast doubt on Ms Reeves’s claims that Labour is bringing down the cost of living. It also comes amid a clash between the OBR and the Chancellor about whether she told the truth about the state of the public finances in the run-up to the Budget.
The OBR’s disclosures relate to contracts for difference (CfD), the system under which levies are added to household bills to finance subsidies for green energy projects, including wind, solar and nuclear.
The OBR forecasts that CfD costs are set to rise from £2.3bn in 2024-25 to £4.6bn by 2030-31. However, it warned that the Treasury’s estimates excluded an additional £5bn for AR7 and subsequent subsidy rounds.
It said: “These [figures] exclude future auction rounds, including AR7 for which outcomes are expected in early 2026.
“This is expected to auction CfD contracts up to £1bn a year (in 2025 prices) between 2028-29 and 2032-33.”
Mr Miliband’s Department of Energy Security and Net Zero (Desnz) confirmed that AR7 would add to the cost of CfDs.
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As well as funding the CfD scheme, households are also braced for a further hit from another subsidy called the capacity market levy.
This is a separate subsidy that pays generators to turn on gas-fired power stations and hydroelectric dams when output from intermittent renewables plummets.
Treasury figures suggest the costs of the capacity market levy will rise from £1.6bn in 2025-26 to around £4.6bn in 2030-31.
The OBR’s warning follows separate revelations of a further £1bn that will be added to bills from January to support construction of the Sizewell C nuclear power station in Suffolk.
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