Plans to cap the revenue of renewable energy generators are facing a fierce backlash with suggestions it will hurt investment in renewable power.
Share prices in power generators fell yesterday in response to weekend reports that the government could implement the legislation this week.
The cap was described by Citi as a windfall tax in all but name, though the investment bank's view seemed that it was inevitable given the poor reception given to the government’s recent mini-budget.
SSE PLC (LSE:SSE), one of the UK’s largest renewable electricity generators, said investment in renewable energy would be badly affected, having previously pledged to use additional profits to fund “long-term solutions that help reduce the UK’s exposure to volatile international gas prices.”
Analysts at Jefferies called the plan “punitive,” arguing that the suggested cap at £50-£60/MWh, down from £490/MWh, will deter investors and distort the market.
Suggestions have also been made that the revenue cap on renewables is harsher than the July windfall tax on oil and gas producers.
Green Alliances’ Dustin Benton argued that the government should standardise policy towards all energy suppliers instead of targeting renewable generators, whilst Cara Jenkinson, of climate group Ashden, stressed the need for “maximum investment” in green energy.
Other commentators suggested that the reluctance to call it a tax was to stop it from being applied retrospectively.
Critics have questioned why other methods of electricity generation that have nothing to do with gas are linked to it, especially now with the price of gas-fired generation soaring.
The reports suggested the revenue cap will attempt to split this link, which has allowed energy companies to reap massive profits this year after gas prices skyrocketed.
Germany yesterday announced its own plans to cut the link between gas and other energy prices, which could see the government fund gas bills in December and then introduce large subsidies from March onwards, according to US bank JP Morgan.
Today, Drax Group (LSE:DRX) shares fell 1% to 527p with SSE down 1.1% at 1,477p though British Gas owner Centrica PLC (LSE:CNA) rose 1.7% to 70p on a buy note from Citi, though its target price was cut to 81p.