Consumers face cheaper energy bills as government plans cap on wind farm profits

Wind farms and nuclear power plants are in the mix for the cap as it emerged that UK ministers are hoping to break the link between high dual fuel bills and the amount made by energy producers.

The temporary “cost-plus revenue limit” is aimed at cutting the impact of wholesale prices on consumers and the taxpayer, capping the amount green energy generators can make.

Ministers say the proposals would ensure consumers and businesses pay a fair price for energy.

The bill puts into law ministers' promises to cap dual fuel bills to an average of £2,500 for the next two years.

The precise mechanics of the cap will be subject to a consultation to be launched shortly.

The UK government said it has been working closely with industry on the detail of the proposal, ahead of it coming into force from the start of 2023.

Energy firms say it could put off investment.

"It will ensure consumers pay a fair price for low carbon energy and has the potential to save billions of pounds for British billpayers, while allowing generators to cover their costs, plus receive an appropriate revenue," said the UK government.

It comes amidst persistent protests over revenues energy firms are making while household energy bills skyrocket.

The Herald revealed that ScottishPower which has been pushing for a taxpayer-backed £100bn fund to help energy firms freeze energy bills has handed over nearly £7bn in dividends to its foreign owners since being taken over 14 years ago.

The UK government says it is taking steps to "break the link between abnormally high gas prices and how much revenue low-carbon electricity generators receive".

It said: "This will allow consumers to pay a fair amount for their electricity, and ensure electricity generators are not unduly profiting from the energy crisis caused in part by Russia’s invasion of Ukraine. "The government recognises the importance of dispatchable and baseload generation for security of supply.

"The low-carbon technologies that can deliver these types of power do tend to have higher input costs (such as biomass and nuclear) and this is being considered as part of the detailed policy design.

"This is planned to be a temporary measure to deal with the exceptional market conditions driven by high global gas prices, in light of Russia’s invasion of Ukraine, and it is anticipated that this will endure until such time as the markets return to normal or generators move onto other market arrangements...

"The limit will still allow generators to cover their costs and receive an appropriate revenue that reflects their operational output, investment commitment and risk profile.

Dan McGrail, chief executive of RenewableUK, said that the move risks sending the "wrong signal" to investors in renewable energy in the UK, and skewing investment towards fossil fuels.

Keith Anderson, chief executive of Scottish Power, said it was deeply worried at the suggestion renewable generators are making "extraordinary profits".

He said: "It's disappointing that such a significant market intervention by the government has come with so little detail, all this does is create uncertainty.

"This crisis has been caused by the cost of gas and it's strange the proposed solution is to cap the price of low-carbon generation and to leave the gas sector untouched."

A windfall tax on the UK oil and gas sector was introduced in May, described as a 25% Energy Profits Levy, applying to companies that extract UK oil and gas.

The business and energy secretary Jacob Rees-Mogg has denied that the energy plan amounts to a “windfall tax”.

He said “The intervention in the market is done on the basis of limiting the gas price which feeds through to the electricity price. This feeds through to participants within the market.

“So, if we had capped the wholesale price of gas rather than the retail price of gas, this would have affected the renewable generators anyway.”

Ed Miliband, the shadow climate change secretary, has criticised the Government after it emerged that renewable energy generators and nuclear power plants could have their revenues capped under a new plan.

He said Labour had “led the agenda” on the issue as he attacked the Government’s “incompetence”.

“It’s no wonder people are confused because we have a Government that is an extraordinary combination of dogma and incompetence, and they lurch from crisis to crisis like a drunken sailor, and they’re doing it again today.”

He continued: “I’m afraid the problem about bad government – and we have bad government – is that they don’t just make mistakes, they do the wrong thing. And when they do the right thing, they don’t do it in the right way.”