Whilst successfully installed, Welsh Government delivery partners did not mitigate conflicts of interest risks properly, says Auditor General
The Welsh Government invested £810,000 to help build the CELT2 wind turbine in Carmarthenshire.
While the turbine operates successfully, a number of governance weaknesses have been identified, including around the management of conflicts of interest. This is according to a report published today by the Auditor General for Wales.
The Welsh Government provided a preparatory grant of £25,000 and a repayable construction loan of £785,000 from its Renewable Energy Support Programme to Carmarthenshire Energy Limited (a not for profit enterprise), to go towards the construction of a 500kW wind turbine at Salem in Carmarthenshire.
The Welsh Government programme aimed to increase the number of small-scale, locally-owned renewable energy installations in Wales. CELT2 was constructed by commercial developer Seren Energy and then bought by Carmarthenshire Energy Limited for £1.5 million using £785,000 of Welsh Government funding as well as private finance.
CELT2 started generating electricity in September 2016 and the revenues from the sale of this electricity have facilitated repayment of loan instalments ahead of schedule as well as paying for a number of local schemes such as dry-stone walls, solar panels and battery storage in the nearby village hall.
But after receiving correspondence from residents and a local Assembly Member concerned about the Welsh Government’s financial support to Carmarthenshire Energy Limited, the Auditor General undertook a value for money examination of the project. The report found:
- The Welsh Government placed too much reliance on the programme delivery company, Energy Saving Trust’s own arrangements to manage the actual and potential conflict of interest risks identified in the CELT2 funding application. These arrangements were not sufficient to mitigate risk to an acceptable level before the public funding was released to Carmarthenshire Energy Limited.
- However, whilst conflicts of interest were not well managed as part of the governance of this project, the report found that none of the individuals concerned had acted inappropriately with regard to any matters where they had a conflicting interest.
The formal submission prepared by Welsh Government officials seeking their Minister’s agreement to the proposed funding package lacked sufficient detail and balance. The advice:
- did not mention the significant actual and potential conflicts of interest that existed;
- did not therefore explain how officers had mitigated these and other risks to an acceptable level; and
- was underpinned by an estimated £2.6 million community surplus that was derived from a forecasting model developed by a Technical Development Officer who had a conflict of interest as a director of Carmarthenshire Energy Limited.
- The Auditor General also saw no evidence that the Welsh Government independently evaluated the £2.6 million forecast surplus or sought to highlight a range of potential outcomes to the Minister. Importantly, the cited estimate was roughly double the independently verified figure of £1.3 million benefit that was used by Carmarthenshire Energy Limited itself as part of a public share offer shortly thereafter.
Auditor General for Wales, Huw Vaughan Thomas said today:
“Increasing the number of locally-owned renewable energy installations using public funding can provide sustainable economic development to communities in Wales. However, in the case of CELT2, it is concerning that weaknesses in governance arrangements risked undermining the credibility of the project.
“I hope that the recommendations laid out in this report will ensure that the Welsh Government does more to identify and manage conflicts of interest, as well as making sure delivery partners demonstrate effective risk identification and mitigation arrangements.”
Notes to editors:
- The Renewable Energy Support Programme operated between 1 April 2015 and 31 December 2015 as an interim arrangement, following the end of the five-year ‘Ynni’r Fro’ programme which also supported community renewable energy schemes. The full successor programme to Ynni’r Fro is the Local Energy Service, which commenced on 1 January 2016. All of these programmes have been delivered by the Energy Saving Trust, operating under contract for the Welsh Government.
- CELT2 was a commercially developed project that was offered for sale at the point of construction to Carmarthenshire Energy Limited. The Carmarthenshire-based developer, Seren Energy, had received offers for the project from commercial operators, but gave Carmarthenshire Energy Limited first refusal if they could fund the build costs and make a comparable offer. To do so, Carmarthenshire Energy Limited required a bridging loan to secure the turbine, which was already on order, for the CELT2 project.
- The £1.5 million cost of purchasing CELT2 was met by a mixture of Welsh Government and private finance. Over time, community ownership is expected to increase through share offers which will replace the original sources of finance.
- Carmarthenshire Energy Limited’s funding submission to the Welsh Government projected that CELT2 would generate income of £10.5 million over the 25 year life of the project, through generating electricity. It also estimated that a £2.6 million surplus would be available to support local community renewable energy initiatives.
- The Auditor General is the independent statutory external auditor of most of the Welsh public sector. He is responsible for the annual audit of the majority of public money spent in Wales, including the £15 billion of funds that are voted on annually by the National Assembly. Elements of this funding are passed by the Welsh Government to the NHS in Wales (over £5 billion) and to local government (over £4 billion).
- The audit independence of the Auditor General is of paramount importance. He is appointed by the Queen, and his audit work is not subject to direction or control by the National Assembly or government.
- The Wales Audit Office (WAO) is a corporate body consisting of a nine member statutory Board which employs staff and provides other resources to the Auditor General, who is also the Board’s Chief Executive and Accounting Officer. The Board monitors and advises the Auditor General with regard to the exercise of his functions.