The UK government has confirmed plans to introduce a temporary cap on renewable energy generators’ revenue to curb the impact of soaring wholesale power prices.
The ‘Cost-Plus Revenue Limit’ will apply to renewables in England and Wales from the start of 2023 not currently covered by a Contract for Difference (CfD) in an effort to break the link between “abnormally high gas prices” and how much revenue low-carbon generators receive.
The legislation allows for the revenue cap to apply to Northern Ireland. However, BEIS is in talks with Holyrood to confirm whether the measure will extend to Scotland.
The government has also confirmed it is legislating for powers that will allow it to run a voluntary CfD auction for exiting renewable energy generators next year.
A voluntary contract would grant generators longer-term revenue certainty and safeguard consumers from further price rises, it noted.
BEIS Secretary Jacob Rees Mogg said the government had been working with low-carbon generators to find a solution that will ensure consumers do not pay “significantly more” for electricity generated by renewables and nuclear, with prices spiralling as a result of Russia’s invasion of Ukraine.
He added: “That is why we have stepped in today with exceptional powers that will not only ensure vital support reaches households and businesses this winter but will transform the United Kingdom into a nation that offers secure, affordable and fairly-priced home-grown energy for all.”
The full scope of the revenue cap has yet to be decided and will be subject to consultation. However, it is anticipated to endure until the markets return to normal or generators move on to other market arrangements, such as a CfD.
The limit will still allow generators to cover their costs and receive an “appropriate revenue” that reflects their operational output, investment commitment and risk profile, according to BEIS.
It will be set in advance of the policy tasking effect, though the revenues received by generators will be considered at the end of a settlement period.
BEIS has meanwhile underlined the fact its intervention differs from a windfall tax, as it only applies to “excess revenue generators are receiving”.
It said the government remains committed to supporting investment in renewables and the next allocation round of the CfD scheme for new-build projects will run in 2023 as planned.
Generators will also continue to receive existing revenue support or subsidy payments, such as Renewable Obligation Certificates, to “preserve market stability”.