Concern as Tories plan to cap renewables profits in 'strange' new policy

Without releasing much detail, the Government said it would try to break the link between high gas prices and the amount made by electricity producers.

The Government said it planned to introduce a “cost-plus revenue limit”, but failed to explain how this would work.

READ MORE: Risk of UK recession rises as economy shrinks

It also did not say whether cheaper gas generators and coal power plants, which also benefitted from the current set up, would be impacted by the new rules.

Industry representatives have expressed concern that the proposals will see fossil fuel firms benefit most.

“The precise mechanics of the temporary cost-plus revenue limit will be subject to a consultation to be launched shortly,” the Department for Business, Energy and Industrial Strategy said.

Plan could be extended to Scotland

The proposal would come into force at the start of next year. It would come into effect in England and Wales, while the Government in London said it was consulting with its counterparts in Edinburgh to see if it should extend to Scotland. 

Energy 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.”

READ MORE: Pound down further as Bank of England warns market support will end soon

Some of the UK’s wind and solar farms are already paying back their excess profits.

Wind farms and other generation built under the Contracts for Different scheme, which launched more than half-a-decade ago, return money to customers when prices are high.

The Government and industry have also backed plans for older wind and solar farms to move onto these kinds of contracts.

It is the latest move targeting renewables taken by the current Government amid reports it was considering clamping down on solar farms built on land which could be used for farming.

Call for clarity

Energy sector leaders called for more details from the Government as some warned that the cap needs to be set at a level that does not put off investors.

Dhara Vyas, Energy UK’s director of advocacy said they welcomed the proposed cap as “much-needed support” for millions of households and businesses.

“However, we must be sure that the proposed mechanism does not risk the very investment the UK needs to ensure long-term, sustainable economic growth,” she said.

Dan McGrail, chief executive of RenewableUK, warned that the move risks “skewing investment towards the fossil fuels that have caused this energy crisis”.

“We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK,” he said.

McGrail also warned that the Government must ensure any cap is set at a level that still makes the UK more attractive to investors than the EU, has a planned end point and is technology neutral.

An offshore wind farm. File photo.

However, Keith Anderson, chief executive of Scottish Power, criticised the move as “strange” if the Government caps low-carbon generation but leaves the gas sector untouched.

“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,” Anderson said.

“It’s disappointing that such a significant market intervention by the Government has come with so little detail, all this does is create uncertainty.

“This crisis has been caused by the cost of gas and it’s strange the proposed solution is to cap the price of low carbon generation and to leave the gas sector untouched.”