Set to be introduced in 2023, the Cost-Plus Revenue Limit will apply to renewable generators outside of the fixed-price Contracts for Difference (CfD) scheme and will consider whether it will apply to nuclear and biomass generation.
The government has not set the limit but is considering ‘pre-crisis expectations for wholesale prices’, nor has it specified how long the temporary measure would be in place for in England and Wales.
According to the Department for Business, Energy and Industrial Strategy (BEIS), the limit is intended to ‘sever the link between high global gas prices and the cost of low-carbon electricity’, which has risen in line with the cost of gas due to the war in Ukraine.
“The government needs to be really careful about who it targets with any windfall tax,” commented Sarah Merrick, CEO of Ripple, a company that helps people buy shares in wind farms. “What this new tax must not do is discourage community or consumer ownership in any way.”
Commenting on the Energy Prices Bill, RenewableUK’s CEO Dan McGrail said: “A price cap acting as a 100 per cent windfall tax on renewables’ revenue above a certain level, while excess oil and gas profits are taxed at 25 per cent, risks skewing investment towards the fossil fuels that have caused this energy crisis.
“This decade we need to attract £175bn of investment in secure, domestic wind power and we can already see the investor concerns over the fragmented approach the EU is taking to price caps. Industry will continue to work with government on policies to help cut consumer bills and safeguard investment. As such, to limit the negative impacts, it is essential that a cap is set at a level that doesn’t make the UK less attractive to investors than the EU, is technology neutral and has a clear sunset clause in place.”
McGrail added that many wind generators sell their power a year or more in advance at prices that are a fraction of high market prices being set by gas.
“These hedging arrangements for wind power will help to keep electricity prices lower for consumers this winter, and the price cap must not undermine these arrangements,” he said.