The UK government has announced to introduce the ‘Cost-Plus Revenue Limit,’ a temporary cap on renewable energy companies’ revenue, to curb the impact of soaring wholesale power prices.
The measure will apply to renewables in England and Wales from the start of 2023 not currently covered by a Contract for Difference (CfD) in order to break the link between “abnormally high gas prices” and how much revenue low-carbon generators receive.
The legislation allows for the revenue cap to implement in Northern Ireland. However, the Department for Business, Energy and Industrial Strategy (BEIS) has yet to decide whether the measure will extend to Scotland.
The government had been working with low-carbon generators to find a solution that will ensure consumers do not pay “significantly more” for electricity generated by renewables and nuclear, with prices skyrocketing due to Russia-Ukraine conflict, BEIS Secretary Jacob Rees Mogg said.
He added: “That is why we have stepped in today with exceptional powers that will not only ensure vital support reaches households and businesses this winter but will transform the United Kingdom into a nation that offers secure, affordable and fairly-priced home-grown energy for all.”
While the government has yet to decide the full scope of the revenue cap, which will be subject to consultation, the measure is expected to endure until the markets return to normal or generators move on to other market arrangements, such as a CfD.
With the limit in place, generators can still cover their costs and receive an “appropriate revenue” that reflects their operational output, investment commitment and risk profile, according to BEIS.
Nevertheless, generators reacted with dissatisfaction. Chief Executive Keith Anderson of ScottishPower said: “We’re deeply worried at the suggestion renewables generators are making extraordinary profits when our power has been sold in advance at much lower pre-war prices – a fraction of today’s cost – protecting customers by hundreds of millions of pounds.”
“A cap is a de-facto ‘windfall tax’ on low-carbon generators that, if not designed and implemented correctly, could have severe negative consequences for investment in the renewable and wider energy market and so for the energy transition,” said Tom Glover, UK country chair for RWE AG, a major investor in British renewable energy sector.
“We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK,” said Dan McGrail, chief executive officer of industry group RenewableUK. “A price cap acting as a 100% windfall tax on renewables’ revenue above a certain level, while excess oil and gas profits are taxed at 25%, risks skewing investment towards the fossil fuels that have caused this energy crisis.”
Meanwhile, BEIS has underlined the fact that this measure is different from a windfall tax, as it only applies to “excess revenue generators are receiving.”
Generators will also continue to receive existing revenue support or subsidy payments, such as Renewable Obligation Certificates, to “preserve market stability,” BEIS said.