Shares in SSE PLC (LSE:SSE), Centrica and several renewable energy investment companies rose after the UK government confirmed plans to move older wind and solar farms onto fixed-price contracts, or else be hit with higher windfall taxes.
SSE, which owns windfarms and hydroelectric power plants, saw its share climb 3.3% to 2,610p on Tuesday, while fellow FTSE 100-listed energy producer Centrica PLC (LSE:CNA), which owns British Gas, and FTSE 250-listed biomass burner Drax Group (LSE:DRX) were up 2.3% and 1.8%.
Specialist investment trusts Bluefield Solar Income Fund Ltd (LSE:BSIF, FRA:5B3), The Renewables Infrastructure Group Limited (LSE:TRIG), Foresight Environmental Infrastructure (LSE:FGEN) and Greencoat UK Wind PLC (LSE:UKW, FRA:3GC) all rose between 5.9% and 2.9%.
The government proposals would see wind and solar farms that currently earn market-linked revenues offered contracts that guarantee a set price for electricity, reducing exposure to volatile gas markets.
These 'wholesale contracts for difference’ will be introduced voluntarily later this year, the Department for Energy Security and Net Zero (DESNZ), with an intention to run an allocation process next year.
Wholesale CfD would offer existing eligible generators that are not already contracted under a CfD, such as some older wind and hydro assets owned by SSE and Centrica, the option to accept a fixed price for the electricity they generate. This would mean that both they and consumers are no longer exposed to volatile gas-linked electricity prices.
The move is aimed at breaking the link between electricity prices and gas in the UK, as wholesale power prices are currently set based on the gas price, despite renewables generating a growing share of power.
Energy Secretary Ed Miliband said: "As we face the second fossil fuel shock in less than 5 years, the lesson for our country is clear: The era of fossil fuel security is over, and the era of clean energy security must come of age. That’s why we’re doubling down on clean power, to give our country energy security and bring down bills for good."
Most of SSE’s newer renewable projects are already on fixed-price contracts, but a significant portion of its older assets still sell power at market rates under the Renewables Obligation scheme.
The proposed wholesale CfDs would target these legacy assets, offering more stable revenues but potentially limiting upside during periods of high electricity prices.
Analysts have previously estimated that such reforms could save UK consumers billions each year by reducing exposure to gas-driven price spikes.
To help persuade generators to accept the fixed-price contracts, Miliband is also raising the windfall tax paid by energy generators on excess profits to 55%, up from the previous 45%.
Officials said this move is expected to generate funds to help the government provide support to households with energy bills.
"Instability in the Middle East has shown that Britain’s reliance on international fossil fuel markets leaves families and businesses exposed to volatile gas prices, driving the cost-of-living crisis even though much of the country’s electricity comes from cheaper renewables and nuclear," DESZN said in a joint statement with the Treasury and 10 Downing Street.
"When wars, geopolitical tensions or supply shocks abroad push up global gas prices, electricity bills rise with them, exposing families to crises they have no control over."
** UPDATE: Adds more detail, share prices of more companies **