Cap on low-carbon energy profits could deter investment, bosses warn

The Department for Business, Energy & Industrial Strategy (BEIS) introduced its Energy Prices Bill yesterday (Wednesday October 11), which is designed to support households and businesses with energy costs this winter.

It includes powers to stop the recent volatile and high gas prices dictating the cost of electricity produced by much cheaper renewables.

A new ‘Cost-Plus Revenue Limit’ will be implemented to cap the prices of energy generated by renewables and nuclear which are not volatile by nature.

The new Bill follows a rejection of proposed windfall taxes on oil and gas firms under Liz Truss, who said such taxes would deter investment in North Sea oil production.

Dhara Vyas, Energy UK’s director of advocacy, said the Bill risks “the very investment the UK needs to ensure long-term, sustainable economic growth.

“We look forward to continuing to work with government to ensure that any new mechanism is introduced in a way that encourages investment in low-carbon generation, rather than deterring it.”

In the UK market, wholesale electricity prices are set by the most expensive form of generation – presently gas-fired generation, which is significantly higher following the Russian invasion of Ukraine.

Low-carbon electricity generators are therefore benefiting from abnormally high prices, with consumers having to pay significantly more for energy generated from renewables and nuclear.

The Cost-Plus Revenue Limit has been described as a temporary measure by BEIS and its exact mechanism will be subject to a consultation that will be launched ahead of it coming into force from the start of 2023.

RWE UK country chair Tom Glover said the cap was a “de-facto windfall tax on low-carbon generators”.

If not designed and implemented correctly, it could have severe negative consequences for investment in renewables and the wider energy market, he added.

Business secretary Jacob Rees-Mogg said: “Businesses and consumers across the UK should pay a fair price for energy. With prices spiralling as a result of Putin’s abhorrent invasion of Ukraine, the government is taking swift and decisive action.

“We have been working with low-carbon generators to find a solution that will ensure consumers are not paying significantly more for electricity generated from renewables and nuclear.

“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.”

The Energy Price Guarantee currently ensures that a typical UK household pays around £2,500 a year on their energy bill for the next two years, starting from October 1 2022.