Why the renewables industry must settle with the Government over so-called windfall profits

The renewables industry is currently embroiled in an unedifying struggle with the Government over windfall profits. This should be ended quickly with an agreement that should keep the projects in business and save consumers lots and lots of money.

Currently there is a problem because older renewable energy projects financed under the Renewables Obligation (RO) are receiving payments for renewable obligation certificates (ROCs) PLUS the currently sky-high wholesale power prices. Given that this generation constitutes over a quarter of total electricity supply this makes a big difference to electricity prices. These windfall profits need to be reined in.

But Government and the renewable generators are at an impasse. The Government offered generous long term fixed price contracts as an alternative to current conditions, but this has apparently been rejected by some generators. In response the Government has threatened a cap on wholesale prices that, to work, would be less than some renewable energy generators receive in income. That’s because many of these older projects (and more expensive) projects  were relying on the ROC as well as wholesale price values to stay generating. Some older offshore windfarms are getting 2 ROCs, with other technologies varying according to when they started generating.

The obvious solution is for renewable generators to accept the offer of long term CfDs that cover their costs, tailored to the ROCs they have been awarded. Technically that means tailored to the formula of their originally awarded ROC value plus the pre-2020 wholesale price of around £50 per MWh. Ok, it’s complicated, but it seems clear to me. Why won’t this work?

Now, prove me wrong, but to me it looks like there are some financial controllers of big company operators who are refusing to compromise with the Government. The Government in response is wielding the stick of a once-size-fits-all cap on income that could, genuinely, see some projects collapse.

Why can’t we have a compromise whereby the Government makes a decent CfD offer on the lines that I have suggested, with the cap as a default position in the case of individual generators who do not agree?

This is emerging as an unnecessary distraction from the need to expand the number of solar and wind CfDs that need to be issued for new projects. It also takes attention away from the fact that EDF are also making windfall profits on their nuclear generation – there should definitely be a nuclear generation price cap as far as I am concerned! Finally, of course, this distracts from the fact that the oil and gas companies are still making a major killing from their North Sea assets which are still not being taxed nearly enough.

by David Toke

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One thought on “Why the renewables industry must settle with the Government over so-called windfall profits”

  1. Excellent post David. I have been concerned about the excessive profits of some renewable energy generators, but unwilling to complain too loudly for fear of being seen as anti-renewables. Political debate these days does not seem to handle complex arguments or nuance very well, but you have made a very sound argument for tackling the problem intelligently.
    I completely agree that we need to be careful that this issue does not distract from the bigger picture that renewables can provide clean energy that is both cheaper than fossils and independent of geopolitical events such as Putin’s invasion of Ukraine.

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