Cap on the excess revenues of renewable generators risks deterring investment

In response to the announcement of a consultation on a Cost-Plus-Revenue Limit which will put a cap on all excess revenues renewable generators are receiving.

Tom Faulkner, Head of Assets and Infrastructure and Networks at Cornwall Insight said:

“The introduction of a cap on the revenues of renewable generators is a swift change of direction for a government that had previously been against any form of windfall tax. While the cap will only be applied to excess revenues, as opposed to applying to all profits, the fact remains this high-level market intervention will leave many investors taking stock and could lead to delays or cuts to UK renewable investment.

“There are still many unanswered questions which makes reviewing the impact a difficult task, not least the fact we do not know what the Cost-Plus-Revenue Limit will be or even have a timeframe for how long it will be in place. The EU has recently agreed a cap for renewable generators, with the price set at €180/MWh, however early reports have suggested UK government negotiations were starting at £50-60/MWh. Such a significant gap in prices, coupled with an uncertain end date begs the question, will investors simply move across the channel?

“While many of the details remain unclear and will be subject to industry consultation, the government maintains that any cap will be temporary and is still intending to run a voluntary Contracts for Difference process for existing renewable generators in 2023, in-line with previous pledges from Liz Truss. These commitments, alongside maintaining the Renewables Obligation (RO) will hopefully temper some concerns, by how much remains to be seen.

“Ultimately, at a critical time when policy and regulation need to be aligning to support ambitious net zero targets, an enforced cap on revenues is very much untested waters. Existing policy schemes were driving investment, with ~30GW of renewables supported under the RO alone. The Committee on Climate Change has noted that net zero investment needs to grow to £50-60bn a year by 2030, nearly double the £30bn a year currently invested. If there is an investment hiatus this investment gap will only grow.

“Building and investing in renewables is seen to be a critical route out of reducing dependency on gas, but there is a possibility that there will be a risk premium on investments after these interventions. If this manifests itself the costs of transition grows.”


Notes to Editors

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Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British, and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.