Talking Point  

A severe cap on renewable energy revenues could put off investors

A severe cap on renewable energy revenues could put off investors
A Hydrogen power grid in Carlisle (credit: Anthony Devlin/Bloomberg via Fotoware)

If the government’s plans to cap revenues of renewable energy generators and nuclear power plants goes too far, it could put investors off from the UK, Tom Gilbey, equity research analyst at Quilter Cheviot has warned.

Gilbey argued that while It was right that there should be a cap in place as companies could not expect to make supernormal profits at a time when household energy bills were soaring a balance needed to be struck.

Gilbey added: “While no details have yet been provided for a cap on the revenues of renewable energy providers, the wind is clearly blowing in that direction given the soundings coming out of the government. 

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“There is a … risk that the government goes too far with its plans. Overall this wouldn’t be a particularly positive or progressive move at a time when investment should be encouraged into renewables and green energy technologies. This could result in a step backwards in our transition towards a greener future and impact jobs in what is still a developing industry.

“The UK government has spoken about the importance of this industry, but the caps are rumoured to be below the levels set by the EU and thus does risk putting off people bidding for projects in the UK. With the energy transition in full flow, now is the wrong time to be stringent on an industry that needs the investment.”

Further afield, at the end of September, the European Council agreed to cap the market revenues at  €180 per MWh for electricity generators, including intermediaries, that use so-called inframarginal technologies to produce electricity, such as renewables, nuclear and lignite. 

The council said such operators had made unexpectedly large financial gains over the past months, without their operational costs increasing. 

This is because of the role of coal and gas as price-setting marginal sources that currently inflate the final price of electricity.

The Council added that the level of the cap is designed to preserve the profitability of the operators and avoid hindering investments in renewable energies.