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New ‘Energy Prices Bill’ presents challenges for renewable energy providers

The UK government has introduced the new ‘Energy Prices Bill’ with the aim of combating soaring energy prices; helping households and businesses this winter and going forwards.

While the primary purpose of the bill is to facilitate financial support for domestic and business customers through this winter, the bill also contains provisions enabling the imposition of revenue caps for electricity generators

The government claimed that because the marginal price of gas has frequently dictated the price of electricity, renewable energy firms were “benefitting from abnormally high prices while consumers are having to pay significantly more for energy generated from renewables and nuclear”.

The measures are similar to the recent policies introduced by the EU, which require all non-gas generators to pay member states ‘excess profits’ above 180 euros per megawatt hour.

While these measures have attracted support from the opposition on the basis that they represent an additional windfall tax on energy generators, but without the exemptions and allowances which are available to oil and gas producers under legislation previously introduced by the UK government.

Curiously, the governments approach has the potential to create some perverse outcomes, in that the exemptions available to oil and gas producers will likely divert significant levels of capital into additional fossil fuel extraction in the UK, without the provision of any offsetting incentives to divert capital into additional renewable generation capacity.

A number of industry figures have also voiced concerns that the caps could have a negative impact on future investment into UK renewables if this sector becomes uncompetitive with its European counterpart businesses, due to the level of cap.

It is hoped that the government will listen carefully to these concerns and see the opportunity to use this new legislation to help incentivise the creation of additional renewable generation capacity.

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