Ministers ‘wrestling’ to prevent revenue cap from undermining investment

The government is “wrestling” to make sure its plans to cap the windfall revenues being captured by low-carbon generators on the back of massively increased gas prices do not undermine future investment, the climate minister has said.

Giving evidence to the House of Commons Environmental Audit Committee, Graham Stuart said the objective of the Energy Prices Bill introduced to Parliament on Wednesday (12 October) is to ensure “no firms” should “unduly” profit from the Russian invasion of Ukraine at the “expense” of UK consumers.

He said: “We are wrestling with how to break the link between electricity and gas prices in a way that is fair to producers and doesn’t undermine our investment environment that is so important, given the tens, if not hundreds, of billions we are looking to have invested here, yet recognising that this is off the scale in terms of prior projections of revenues.”

Stuart said “many” of the measures in the Energy Security Bill, which has been shelved pending a review after Liz Truss became prime minister and to make time for the new legislation, are “fundamental” to the government’s objectives to accelerate the transition to a lower carbon electricity system.

He said: “We remain committed to the important measures in the bill to deliver change in the energy system over the long term.

“Given my brief to accelerate on these fronts, the enabling measures in the bill are important. Many of the 26 measures in the bill are fundamental to what we seek to do.”

Responding to concerns that the government is preparing to make it harder to build solar farms on agricultural land, the minister said it is important to “strike the right balance” between farming and energy.

He said: “Solar is a cheap, versatile and efficient technology that can be deployed in a range of locations. Having more solar helps to limit households’ electricity bills.

“We will need to sustain growth in both rooftop and ground mounted capacity over the next decade.

“The government recognises the need to preserve our most productive arable farmland and it is important that the government can strike the right balance between these concerns and securing a clean green energy system in the future.”

Stuart said the Department for Business, Energy and Industrial Strategy (BEIS) is working “closely” with on the issue with ministries for levelling up, which oversees the planning system, and the environment.

He also told the committee that the government’s review of how to deliver the UK’s net zero target is in the “safest possible hands” after former energy minister Chris Skidmore was appointed to carry out the exercise.

However, Stuart said it is important to show that decarbonisation can be achieved without sacrificing prosperity: “While maintaining the coalition behind this agenda to show its pro growth and pro-jobs and pro prosperity, we want to show it delivers advantages to left behind areas.”

Jonathan Mills, BEIS director general for energy supply, denied that the revenue cap proposed in the bill is a tax.

He said: “It is designed to address the way the market functions with prices in the wholesale market being set by highest price gas rather than address issues of profits which taxes are generally addressed at.”