UK govt's energy prices bill provides for revenue limit for low-carbon generators

The UK government is today introducing its Energy Prices Bill which will include powers to set a Cost-Plus Revenue Limit for low-carbon electricity generators.

The bill is designed to deliver on plans set out by new UK prime minister Liz Truss last month to tackle high energy prices. It will give the legislative framework for the government’s Energy Price Guarantee and Energy Bill Relief Scheme that will support bills for domestic consumers and businesses, respectively.

“Our actions will mean that energy bills for the typical household will be half what they would have been this winter,” said Chancellor of the Exchequer Kwasi Kwarteng.

The Cost-Plus-Revenue Limit is a new proposal that will apply to low-carbon generators not currently covered by a contract for difference (CfD). It is intended to be a temporary measure and to come into effect from the start of 2023. Details of the measure will be subject to a consultation that will be launched shortly, the government said.

“We have been working with low-carbon generators to find a solution that will ensure consumers are not paying significantly more for electricity generated from renewables and nuclear,” said Business and Energy Secretary Jacob Rees-Mogg.

“That is why we have stepped in today with exceptional powers that will not only ensure vital support reaches households and businesses this winter but will transform the United Kingdom into a nation that offers secure, affordable and fairly-priced home-grown energy for all,” he added.

The measure will set a temporary fixed price for low-carbon generators in a move designed to break the link between abnormally high gas prices and the price of electricity from these generators.

This is not a windfall tax as it will apply to generators’ excess revenues rather than all profits, the government noted. It is in communication with the Scottish government to confirm whether the measure will extend to Scotland.

Commenting on the planned limit, a spokesperson for energy company SSE Plc (LON:SSE) said: “Any revenue cap must be set at a level that doesn’t discourage essential investment in the UK’s renewable energy sector and therefore should be comparable to other countries, particularly given the EUR 180 cap being implemented by the EU. After all, the key lesson of the current energy crisis is the need to bolster our homegrown energy defences.”

The legislation will also enable the government to consider running a voluntary CfD for existing generators, which would provide generators with longer-term revenue certainty while protecting consumers from further price rises.

The government also confirmed that the next allocation round of the CfD scheme for new renewables generation will launch in 2023 as planned.

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