A revenue cap on renewable energy electricity generators has been confirmed as part of a government bill designed to aid consumers facing rising energy bills.
Few details were released but Citibank experts said the level set for the cap will be the key point.
“The exact scope of the cap is subject to consultation,” said Citi.
Renewable energy suppliers RWE (ETR:RWE) and SSE PLC (LSE:SSE) outlined their beliefs that the cap should comparable to the €180/MWh recently suggested by the EU, which would equate to roughly £158/MWh.
The market price of electricity is currently £490/MWh but earlier reports had suggested the cap might be low as £60/MWh.
In the last offshore windfarm auctioning round, in July, average prices set for new investments were £37/MWh with onshore £42MWh, solar £46/MWh and hydro £178/Mwh.
In a statement confirming the cap, which is part of the upcoming Energy Prices Bill, the Department of Business (BEIS) said it will apply in England and Wales from the start of 2023 with legislation potentially allowing it to be implemented in Northern Ireland.
Following the confirmation, generators Drax Group (LSE:DRX), SSE and RWE (ETR:RWE) said they would work with the government to minimise its impact.
Mark Fleming, of RWE (ETR:RWE), added: “It is critical that any cap is applied in such a way that does not severely impact on investor confidence and maintains the UK electricity sector as an attractive place to invest, given the estimated £90bn required by 2030 to make the UK more energy independent and to achieve net zero.”
He also said: “A cap is a de-facto ‘windfall tax’ on low-carbon generators,” countering the government line that it is not.
In a press release, SSE said it will “work with the Government on the details of the policy to ensure it meets its objective of addressing extraordinary profits without throwing away the UK’s global leadership position on renewable energy investment”.
Citi Bank was more positive, highlighting its belief that: “A cost-plus model should help underpin nuclear and biomass technologies”.
Here a fixed percentage is combined with costs of production to determine the final price.