Renewable energy generators and nuclear power plants could have their revenues capped under a new Government plan to ensure they are not benefitting from record-high energy prices. 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 the price of gas decides the price of electricity, so as gas prices soared over the last year, many of Britain’s wind farms and solar farms were paid a lot more than normal for their products, even though their costs had not increased very much. The Government said it planned to introduce a “cost-plus revenue limit”, but provided little detail about how this would work.
It also did not say whether cheaper gas generators and coal power plants, which also benefitted from the current set up, would be affected by the new rules. “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.
Officials and ministers have been working closely with the industry on the details, and the proposal would come into force at the start of next year. It would come into force in England and Wales, while the Government in London said it was consulting with its counterpart in Edinburgh to see if it should extend to Scotland. The legislation would also allow the rules to be extended to Northern Ireland.
Business and 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.”
For Labour, shadow climate change secretary Ed Miliband said the Government had finally accepted the principle of a windfall tax on excess profits of electricity generators. He said: “After months of telling the country they were utterly opposed to the principle of a windfall tax, they have been dragged kicking and screaming to implement it.”
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 comes weeks after the Government announced a cap which limits household energy bills to 34p per unit of electricity and 10.3p for each unit of gas they use.
Chancellor of the Exchequer Kwasi Kwarteng said: “Our actions will mean that energy bills for the typical household will be half what they would have been this winter. We are protecting people, holding down inflation and preventing Putin’s energy price hike from causing long-term harm to our economy by supporting businesses.”
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