Renewable energy generators and nuclear power plants could have their revenues capped under a new government plan. The move could hit the profits energy companies, like SSE and Scottish Power, generate from record-high wholesale power prices. Ministers say the proposal would ensure consumers and businesses pay a fair price for energy. But energy bosses say the plan – for which there are few details – could put off investors. Currently, in the UK, wholesale electricity prices are set by gas-fired generation. With the price of gas rocketing in recent months, some nuclear power plants and solar and wind farms have made big profits.
This is different at newer facilities, which produce power at an agreed price. The temporary cap, which will limit the amount generators can make, is set to be introduced in the House of Commons on Wednesday as part of the Energy Prices Bill.
There is little detail about how the revenue cap would work, but the Department for Business, Energy and Industrial Strategy said it would launch a consultation shortly. It is expected the legislation could come into force in England and Wales at the start of next year, while the government is consulting with the Scottish government to see if it can extend there.
The legislation would also allow the rules to come into force in 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.”
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.” But Labour claimed the proposal showed the Conservatives have accepted the principle of a windfall tax on excess profits of electricity generators.
Shadow Climate Change Secretary Ed Miliband 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.” Leaders in the energy sector warned any new measure must not put off investment and should be comparable to other countries. Dan McGrail, chief executive of Renewable UK, said that the move risks sending the “wrong signal” to investors in renewable energy in the UK and skewing investment towards fossil fuels.
Keith Anderson, chief executive of Scottish Power, said it was deeply worried at the suggestion renewable generators are making “extraordinary profits”. 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.” A windfall tax on the UK oil and gas sector was introduced on 26 May, described as a 25% Energy Profits Levy, applying to companies that extract UK oil and gas.
