The UK government has decided to press ahead with reforms to the Renewables Obligation (RO) scheme despite warnings that a retroactive change to the legacy support mechanism will damage investor confidence in the country’s clean energy sector.
London said it intends adjust the indexation of payments made under the RO from the current retail price index (RPI) to the consumer price index (CPI), effective from April this year.
It said the option, which was one of two potential reforms tabled in a consultation last year, “strikes the most appropriate balance between reducing the cost burden on consumers while maintaining strong investor confidence in the UK’s renewable energy sector”.
Reforming indexation payments under the RO scheme is a “necessary and proportionate change” as policymakers look to reduce costs across the energy system and tackle rising customer bills, it added.
Energy department DESNZ said that its preferred option of an immediate switch to CPI could at its peak generate savings to consumers of more than £270m a year.
An alternative approach consulted on to introduce a temporary freeze on the RO buy-out price at the 2025-26 level followed by a more gradual realignment with the CPI was considered to be the more disruptive of the two proposals.
Industry and investors have warned that near-term savings recouped by reforming the RO system would be outweighed by a wider negative impact on investor confidence due to what is viewed as moving the goalposts on past commercial arrangements made in good faith.
NextEnergy Capital chief investment officer Ross Grier said: “Whilst the selected option is the less disruptive of the two proposed, we remain disappointed that the government is taking steps that are expected to harm investor confidence in Great British infrastructure at a time when we need more capital than ever to deliver the energy transition in a timely fashion.”
DESNZ stated: “We fully recognise the importance of regulatory stability for maintaining the UK’s attractiveness to global capital.
“The UK government and devolved governments have carefully weighed the strength of stakeholder sentiment and potential damage to future investment in arriving at a final decision, mindful of the key role that private investors play in delivery of the clean energy mission.”
It added: “The UK government and devolved governments acknowledge that switching to CPI indexation carries some risk to investor confidence, particularly where financing models and contractual obligations are linked to the RPI.
“While we note that revenues for some generators may reduce in the near term, change is expected to be modest relative to the wider benefits.”