Renewable energy generators and nuclear power plants could have their revenues capped under a new UK Government plan to ensure they are not benefitting from record-high energy prices.
Without releasing much detail, Westminster 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.
It planned to introduce a “cost-plus revenue limit”, but provided little detail about how this would work, while also not stating whether cheaper gas generators and coal power plants - which also benefitted from the current set up - would be impacted 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.”
Shadow climate change secretary Ed Miliband said the government had finally accepted the principle of a windfall tax on excess profits of electricity generators.
“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,” he said.
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 a cap was announced which limits household energy bills to 34p per unit of electricity and 10.3p for each unit of gas they use.
Chancellor 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.”
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.
Energy sector leaders called for more details, 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”, adding: “We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK.”
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.
However, Scottish Power chief executive Keith Anderson 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,” he 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.”
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