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Policy update: Energy Prices Bill

October 12 2022

The Government has today published the Energy Prices Bill with the primary aim to help support consumers with their energy costs.

The new Bill proposes an introduction of a temporary Cost-Plus-Revenue Limit on renewable and nuclear generation revenues.

No final details about the proposal have been announced yet, other than the proposed timings for it coming into force are at the start of 2023.

As far as we know, the mechanism would introduce a cap above which the price per MWh of electricity generated from renewables and nuclear would face an additional tax, effectively creating a windfall tax mechanism in all but name.

The proposal will now go through a consultation phase.

Renewable Exchange’s view on the proposal:

Renewable Exchange and the renewable energy industry are in support of measures taken to ensure the full benefit of low cost renewables flow to customers.

We are however surprised and disappointed with the Government’s proposal to introduce a punitive revenue limit on renewable energy generators, with no details announced on how the tax may work in practice.

While it is crucial that we look for solutions to address the energy crisis, this is not the way. The Cost-Plus-Revenue Limit proposal will impact renewable energy generators much more significantly than the recent tax changes had impacted oil and gas. This stands in opposition to the country’s Growth Plans which aim to support the development of renewable generation.

The proposal will have a detrimental effect on existing projects and sends wrong signals for investment into low carbon technologies.

Together with the proposed changes to solar planning regulations, it all but halts the development of many new low carbon projects in the UK.

How your PPA may be impacted:

For those with a PPA already secured for 2023 and beyond, it is likely you will face a tax of some form on excess revenue above the price cap (the level of which is yet to be set). Nevertheless, it is understood that the tax will be set below 100% so the higher the price you secured on your PPA, the higher the price (net of tax) you will ultimately retain.

For those who have not yet secured a PPA for 2023, or are considering one for beyond: it is still recommended that you aim to get the best possible price on your PPA. Given the expectation is that the tax rate will be less than 100%, then the higher the price you achieve, the higher the price (net of tax) you will ultimately end up with. So it remains important to look to optimise your PPA price to maximise your revenue.

Industry commentary and further reading:

  • Official press release issued on the Government’s website: Government introduces new Energy Prices Bill to ensure vital support gets to British consumers this winter
  • Commentary by Cornwall Insight, independent consultancy in the energy sector.
  • Commentary by REGEN, a not-for-profit centre of energy expertise.
  • We are here to support you. If you have any questions about this policy update and how your PPA may be affected, please reach out to our team at [email protected]

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