Renewable energy companies will tell UK ministers this week that a planned cap on the revenue they generate from sky-high wholesale power prices must be no more punitive than a similar EU policy – or they risk an exodus of investment to Europe.
The UK government is drawing up plans for a temporary revenue cap, similar to the one already set by the EU as part of efforts to reduce wholesale energy prices, which closely track gas prices and have since risen the total invasion of Ukraine by Russia. Legislation, which would be needed to institute a cap, is expected as early as this week.
Energy industry officials involved in talks with the UK government said negotiations on the level of a cap would continue this week. The proposals could affect companies such as EDF Energy, RWE, Octopus Energy, ScottishPower and SSE.
Shares of UK-listed low-carbon power companies fell on Monday morning after the Financial Times revealed over the weekend that the UK government was planning to impose a cap. Shares of SSE fell more than 3% in early trading, although they later pared losses.
Shares of Greencoat UK wind, a big investor in renewable energy projects, were down more than 8% by mid-morning. Centrica shares were also hit, trading more than 4% lower at one point, as analysts feared the proposals could 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 achieve the country’s net zero emissions goal by 2050.
“It should at least be closely aligned with [that of] the EU,” said a person familiar with the discussions. Otherwise ministers risked “scaring off investors” and sending a signal that Britain was a more hostile place to invest than mainland Europe, the person added.
Another person involved in the discussions added that all companies “wouldn’t care about the cap if it was at a [relatively] high price”.
Under EU plans, non-gas producers must pay member states for the “excess profits” they generate above 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 said she was ideologically opposed to, even though she has maintained an ‘energy profits tax’ additional 25% on oil and gas producers introduced by former Chancellor Rishi Sunak in May.
Owners of low-carbon systems such as onshore wind and solar farms have made particularly large profits from soaring electricity prices since Russia launched its war in Ukraine, as they receive subsidies from state in addition to wholesale tariffs under a former system of “renewable energy obligation certificates”. that goes back two decades.
Newer technologies such as offshore wind are governed by a different system known as “contracts for difference” which already limits the price they receive for their output, although the agreements cover less than 20% of total renewable energy capacity in Britain.
At a meeting between the UK government and power producers in late September, officials said they had considered many possible benchmarks for setting a price cap, such as wholesale electricity 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 will be considerably higher. No final decision on the cap level has been made.
The cap is set to be imposed through energy legislation due to be published as soon as this week, which will also underpin Truss’ £30billion support package to help businesses pay utility bills. energy for the next six months.
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