Government to impose cap on green power revenues

by | Oct 12, 2022

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The UK government has confirmed that renewable energy generators will have their revenues capped in a de-facto windfall tax.
All power generators have seen revenues surge recently after Russia’s invasion of Ukraine caused wholesale gas and oil prices to rocket.

The government has long-insisted it will not impose a windfall tax on renewable generators, however, despite household energy bills reaching record highs.

But publishing its planned Energy Prices Bill, which will be introduced in Parliament on Wednesday, the Department for Business, Energy and Industrial Strategy said that low-carbon electricity generators – including onshore wind, solar, biomass and nuclear – would now have a cap imposed on revenues from the start of next year.

“Currently in the UK market, wholesale electricity prices are set by the most expensive form of generation – presently gas-fired generation,” it said.

“Low-carbon electricity generators are therefore benefiting from abnormally high prices, while consumers are having to pay significantly more for energy generated from renewables and nuclear, even though they often cost less to produce.”

The temporary Cost-Plus Revenue Limit in England and Wales would help “further protect consumers”, it added.

No further details were provided, however, including the level of the cap. The government said the “precise mechanics” would be subject to a consultation, launching “shortly”. But it insisted it could save “billions of pounds” for consumers while allowing generators to cover their costs.

The proposed cap was met with dismay by generators. Tom Glover, RWE UK country chair, said: “We are disappointed that the government has chosen to implement a revenue cap on low-carbon technologies.

“Effectively, a cap is a de-facto windfall tax on low carbon generators that, if not designed and implemented correctly, could have a severe native consequences for investment in the renewable and wider energy market and so for the energy transition.”

SSE said: “Any revenue cap must be set at a level that doesn’t discourage essential investment in the UK’s renewable energy sector and should therefore be comparable to other countries, particularly given the €180 cap being implemented by the European Union.”

Under plans announced by the EU last month, non-gas generators will pass on the majority of excess profits to member states beyond a threshold of €180 per megawatt hour.

According to the Financial Times, the decision to impose a cap in the UK was taken after ministers failed to secure a voluntary agreement with renewable generators to sign 15-year, fixed-price contracts.

Offshore wind has been excluded from the Cost-Plus Revenue Limit because it is already subject to fixed price contracts.

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