Renewables companies warn UK revenue cap could deter investment

Renewable energy companies will tell UK ministers this week that a planned cap on the revenues they generate from sky-high wholesale power prices must not be more punitive than a similar EU policy — or they risk an investment exodus to Europe.

The UK government is drawing up plans for a temporary revenue cap, similar to one already outlined by the EU as part of efforts to lower wholesale energy prices, which closely track those of gas and have surged since Russia’s full-blown invasion of Ukraine. Legislation, which would be needed to institute a cap, is expected as early as this week.

Energy industry officials involved in discussions with the UK government say negotiations over the level of a cap will continue this week. The proposals could affect companies including EDF Energy, RWE, Octopus Energy, ScottishPower and SSE.

Shares in UK-listed low carbon electricity generating companies fell on Monday morning after the Financial Times revealed over weekend that the UK government was planning to impose a cap. SSE’s shares dropped more than 3 per cent in early trading, although they subsequently reduced their losses.

Shares in Greencoat UK wind, a big investor in renewables projects, were down more than 8 per cent by mid-morning. Shares in Centrica took a hit too, trading more than 4 per cent lower at one stage, as analysts feared the proposals would also affect nuclear generators.

Renewable energy companies warn that a UK revenue cap must not be set so low that it stifles investment in low-carbon technologies such as wind and solar, which will be needed to reach the country’s 2050 net zero emissions target.

“It should at least be closely aligned with [that of] the EU,” said one person with knowledge of the discussions. Otherwise, ministers risked “spooking investors” and sending a signal that Britain was a more hostile location to invest in than continental Europe, the person added.

Another person involved in the discussions added that not all companies “would care about the cap if it was at a [relatively] high price”.

Under the EU’s plans, non-gas generators have to pay member states the “excess profits” they generate beyond a threshold of €180 per megawatt hour.

Energy companies say the UK government’s proposals effectively amount to a windfall tax — something prime minister Liz Truss has said she is ideologically opposed to, even though she has maintained an additional 25 per cent “energy profits levy” on oil and gas producers introduced by the former chancellor Rishi Sunak in May.

Owners of low-carbon schemes such as onshore wind and solar farms have made particularly big profits from the spike in electricity prices since Russia launched its war in Ukraine because they receive state subsidies on top of wholesale rates under a legacy “renewables obligation certificates” scheme that dates back two decades.

Newer technologies such as offshore wind are governed by a different system known as “contracts for difference” that already limits the price they receive for their output, although agreements cover less than 20 per cent of total renewables capacity in Britain.

In a meeting between the UK government and electricity generators at the end of September, officials said they had been considering numerous possible benchmarks for setting a price cap, such as wholesale power prices before the energy crisis.

A price of £50-£60 per megawatt hour was mentioned as a starting point for negotiations although officials have since privately indicated that the final price would be substantially higher. No final decision on the level of the cap has been taken.

The cap is likely to be imposed through energy legislation set to be published as early as this week which will also underpin Truss’s £30bn support scheme to help businesses with energy bills for the next six months.

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