Government plans to price household energy bills based on the types of power stations nearby could receive scrutiny from the industry over hampered returns for developers.
Under the scheme, discussed in a government review on Tuesday, billpayers would see energy costs reduced in their local area if close to sources of cheaper renewable power, such as wind or solar.
Though the move would aim to cut bills for households over time as more renewables are built, Stifel warned such plans could discourage investment.
“We think many industry participants will push back on the idea [...] arguing that it will reduce potential new investment if returns in certain regions are too low,” the bank said in a note.
Under the move, which would aim to aid the energy grid’s move toward net zero by 2035, the UK would be split into separate zones, representing individual markets.
Stifel said such zones could create issues though, given energy would still need to be transferred between zones, which could house different rates.
Indeed, “the government will need to consider how to allocate interzonal capacity for market participants to buy and sell power across zones,” the bank said.
Alongside this, and questions over what will happen to existing contracts, Stifel noted developers in different regions may be at a disadvantage when trying to access such markets, given reasons outside of their control.
“Some assets would be less able to respond to locational signals as access to resources or infrastructure would take precedence,” analysts said.
“This could increase costs or decrease revenues for some existing assets or introduce new risks for new investments, some of which could in turn be passed back to consumers in the form of increased financing costs.”