Greencoat UK Wind PLC (LSE:UKW) has warned that government proposals to alter inflation indexation for renewable energy subsidies could cut its asset value and "erode investor confidence" in the UK’s clean energy sector.
The Department for Energy Security and Net Zero (DESNZ) is consulting on changes to the renewables obligation (RO) scheme, which supports large-scale renewable generators.
The consultation sets out two options: either switching the RO’s inflation link from the retail price index (RPI) to the typically lower consumer price index (CPI) from March 2026, or freezing the current RO buy-out price until CPI “catches up” with RPI, a period expected to last until around 2034 or 2035.
Greencoat’s investment manager estimates that the first option would trim its net asset value (NAV) by 2.4p per share, while the second could reduce it by 10.6p.
The government says the changes could help cut consumer energy bills, saving an average household about £3 a year by 2030. But Greencoat argues that retroactive changes to inflation-linked revenue streams could have a much wider negative effect.
The company said that revising the RO scheme retrospectively would “inevitably erode investor confidence”, noting that the combined market value of the six largest listed UK renewable funds fell about £400 million, or roughly 5%, in the five days following the consultation’s release.
"Investors have made good faith investments into UK renewable energy projects based on stable, government-backed, inflation-linked support. Retrospective revision to the RO will inevitably erode investor confidence.
"The listed renewables market is a bellwether for investor sentiment and, in the five trading days that followed the government's announcement, the six largest UK-listed renewable funds saw their combined market cap fall by circa £400 million / 5%."
The trust added that "a small increase in the cost of capital would substantially increase the cost to consumers of new renewable energy projects," arguing that such an outcome would ultimately "serve to increase, rather than decrease, bills.”
The company also called attention to the UK’s growing electricity demand, forecast to rise by around 30% by 2035, alongside the planned retirement of a quarter of the nuclear fleet and one-fifth of gas plants.
It said onshore wind and solar remain the cheapest and fastest forms of new generation and must be supported to meet future needs.
Greencoat proposed an alternative approach through a voluntary Contract for Difference (CfD) scheme, under which existing generators could agree to fixed electricity prices below current wholesale levels.
The company said such a move could save households around £30 a year while maintaining investor confidence.
Despite the policy uncertainty, Greencoat reaffirmed its 2025 dividend target of 10.35p per share, about £225 million in total distributions, and said it had nearly completed its £200 million share buyback programme, which has already added 1.7p per share to NAV.
Chairman Lucinda Riches said the company remains focused on disciplined capital allocation and shareholder value: “We will continue to navigate this market backdrop through strong sector leadership and disciplined capital allocation… and are resolutely focused on doing the right thing for shareholders.”