The government will impose a profit cap on renewable and nuclear energy.
(Picture: Getty Images)The government has announced plans to introduce a profit cap on renewable energy as part of its new Energy Prices Bill.
Announced on October 11, the bill puts into law the government’s support for consumers with energy costs amid rising prices.
It aims to help households and businesses with such costs, while reducing inflation and supporting economic growth.
As part of the bill, the government will introduce a profit cap on renewable energy.
Find out below why the government has introduced this measure and how the energy companies feel about the move.
Why is the government introducing a cap on profits from renewable energy?
The government says that because gas-fired generation of electricity has become more expensive following Russia’s invasion of Ukraine, low-carbon electricity generators are “benefiting from abnormally high prices.”
A press release from the government says: “Consumers are having to pay significantly more for energy generated from renewables and nuclear, even though they often cost less to produce.”
How will the renewable energy profit cap work?
The temporary Cost-Plus Revenue Limit, which will apply to England and Wales, will cap the profit that renewable generators and nuclear power plants can make. This will reduce the impact of rising prices on consumers as a result.
According to the government, “it will ensure consumersâ¯payâ¯a fair price for low carbon energy and has the potential to save billions of pounds for British bill payers, while allowing generators to cover their costs, plus receive an appropriate revenue.”
It is unclear exactly how the Cost-Plus Revenue Limit will work, as the government says its “precise mechanics” will be subject to a consultation.
When will the renewable energy profit cap come into force?
The consultation will be launched shortly and the limit is set to come into force from the start of next year.
What has the government said about the profit cap?
Business and Energy Secretary, Jacob Rees-Mogg, said: “Businesses and consumers across the UK should pay a fair price for energy. With prices spiralling as a result of [Russian President Vladimir] Putin’s abhorrent invasion of Ukraine, the government is taking swift and decisive action.
“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.
“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 also transform the United Kingdom into a nation that offers secure, affordable and fairly priced home-grown energy for all.”
Mr Rees-Mogg has also denied that the profit cap amounts to a windfall tax.
Chancellor of the Exchequer Kwasi Kwarteng said: “Our actions will mean that energy bills for the typical household will be half what they would have been this winter.
“We are protecting people, holding down inflation and preventing Putin’s energy price hike from causing long-term harm to our economy by supporting businesses.”
What have energy companies said about the profit cap?
Following the government’s announcement, energy bosses have said they were concerned that the profit cap could put off investors.
Dhara Vyas, Energy UK’s director of advocacy, said her company welcomed the bill as “much-needed support” for millions of households and businesses.
“However, we must be sure that the proposed mechanism does not risk the very investment the UK needs to ensure long-term, sustainable economic growth,” she said.
“We look forward to continuing to work with the government to ensure that any new mechanism is introduced in a way that encourages investment in low carbon generation, rather than deterring it.”
Dan McGrail, chief executive of RenewableUK, said that the move risked “skewing investment towards the fossil fuels that have caused this energy crisis”.
“We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK,” he said.
“A price cap acting as a 10 per cent windfall tax on renewables’ revenue above a certain level, while excess oil and gas profits are taxed at 25 per cent, risks skewing investment towards the fossil fuels that have caused this energy crisis.”
