Foresight Environmental Infrastructure (LSE:FGEN) has said that a government rethink of two long-standing renewable energy subsidy schemes could dent the value of its portfolio, with the biggest impact coming from a proposed temporary freeze on payments.
The Department for Energy Security and Net Zero yesterday opened a consultation on how inflation is applied to the Renewable Obligation scheme and Feed-in Tariffs, both of which underpin revenues for thousands of UK renewable power projects.
Although closed to new applicants, the schemes still provide inflation-linked payments to generators, currently updated each year using the Retail Price Index.
Ministers now want to bring the schemes in line with wider government policy by shifting to the Consumer Price Index, a lower measure of inflation. The switch is already scheduled for 2030, but the consultation sets out two alternative approaches that would accelerate or deepen the transition.
The first option is straightforward: move from the Retail Price Index to the Consumer Price Index in 2026 rather than 2030.
The second is more drastic, proposing a freeze on payments until Consumer Price Index inflation “catches up” with the historically higher Retail Price Index, an event the government estimates may not occur until 2034 or 2035.
These mechanisms matter because they set the pace at which subsidy payments rise each year. By using a measure of inflation that typically grows more slowly, future revenues could expand at a gentler rate than previously expected.
Foresight Environmental Infrastructure Limited said that about 29% of its revenue comes from assets supported by the Renewable Obligation and Feed-in Tariff schemes. The remainder comes from a range of energy and non-energy income sources.
Initial modelling suggests the earlier inflation switch would trim its net asset value by around 0.5p per share, or 0.5%. The temporary price freeze, however, would lead to a much steeper reduction of 6.6p per share, or 6.3%. Both estimates assume the Consumer Price Index sits at 2.25%.
The company stressed that the numbers are preliminary and may change as the consultation develops.
It plans to respond alongside peers and industry groups, saying it wants to “build the strongest possible case for shareholders”, while recognising the government’s aim of reducing energy costs and supporting the transition to cleaner power.