Government plans cap on renewable energy revenues


A new government plan might limit the earnings of renewable energy generators and nuclear power facilities.


The move could reduce the profits generated by energy firms such as SSE and Scottish Power generated by record-high wholesale electricity rates.


According to ministers, the idea would ensure that consumers and businesses pay a fair price for energy.


However, energy executives believe the plan, which has few details, may deter investors.


Currently, gas-fired generation determines wholesale electricity pricing in the United Kingdom.


With gas prices skyrocketing in recent months, some nuclear power plants, as well as solar and wind farms, have made significant profits.


This is not the case at modern facilities, which generate power at a fixed price.


The temporary limitation, which will limit the amount generators may make, is due to be introduced in the House of Commons as part of the Energy Prices Bill on Wednesday.


The government provided no information in its announcement about the projected price cap on income earned by renewable energy companies.


The government said it would hold a consultation on how the revenue cap would function before implementing it in early 2023.


On May 26, a windfall tax on the UK oil and gas sector, known as a 25% Energy Profits Levy, was imposed on corporations who exploit British fossil fuels.


Renewable energy businesses argue that the UK government's proposed revenue cap amounts to a windfall tax, which Prime Minister Liz Truss has stated she opposes.


Unlike typical windfall taxes, the cap will not be imposed retroactively on excessive profits produced by renewable energy companies.


Instead, the limitation will be a tax on revenues that exceed a government-set ceiling.

Ed Miliband, Labour's shadow energy minister, hailed the decision to implement the cap but claimed the government was "basically doing a windfall tax" after Labour had advocated for it months earlier.


However, Business Secretary Jacob Rees-Mogg argued that the decision was not a windfall tax on the companies concerned.


"It has nothing to do with the revenues these firms make," he explained to the BBC. "It has to do with the pricing structure agreed upon with renewable countries in order to secure a good, long-term strategy."


The UK's decision follows similar attempts in Europe, where the European Union has suggested capping the money renewables generators receive for selling their power in the market at 180 euros ($175) per megawatt-hour (MWh).


According to the Financial Times, rates ranging from £50 to £60 per megawatt hour have been discussed as a starting point for the UK quota, but no final choices have been made.


The legislation is anticipated to go into effect in England and Wales early next year, while the government is discussing with the Scottish government to see if it can be extended there.


The measure would also permit the restrictions to be implemented in Northern Ireland.

Energy industry leaders have stressed that any additional measures must not deter investment and must be comparable to other countries.


According to Dan McGrail, CEO of RenewableUK, the move risks sending the "wrong signal" to investors in renewable energy in the UK, skewing investment toward fossil fuels.


Scottish Power CEO Keith Anderson expressed grave concern over the claim that renewable energy companies are making "exceptional profits."


"It's regrettable that such a substantial government market intervention has come with such little clarity; all this does is generate confusion," he added.


"The cost of gas has generated this issue, and it's bizarre that the proposed answer is to cap the price of low-carbon generation while leaving the gas sector alone."


Simon Jack, the BBC's business editor, broke the story over the weekend and explained why the price ceiling appealed to ministers.


"The difficulty with a windfall tax is that, while it addresses the profit, it does not lower the price. If you set a price cap, profits, prices, and so inflation fall. The latter is a significant draw for the government "He stated.


"The cost of gas has generated this issue, and it's bizarre that the proposed answer is to cap the price of low-carbon generation while leaving the gas sector alone."


Simon Jack, the BBC's business editor, broke the story over the weekend and explained why the price ceiling appealed to ministers.


"The difficulty with a windfall tax is that, while it addresses the profit, it does not lower the price. If you set a price cap, profits, prices, and so inflation fall. The latter is a significant draw for the government "He stated.