Revenue cap ‘at odds’ with fossil fuel reduction goals

The government’s failure to include investment allowances in its proposed cap on low-carbon generation revenues is “at odds” with its goal to cut dependency on fossil fuels, the chair of the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee has argued.

Darren Jones has written to Jacob Rees-Mogg, secretary of state for BEIS, outlining a series of concerns about the Energy Prices Bill, which was announced last week and is due to be rushed through Parliament this week.

The legislation includes powers to impose a temporary ‘cost-plus revenue limit’ on low-carbon generation, which is designed to sever the link between high global gas prices and the wholesale cost of the electricity they produce, from the beginning of next year.

The Labour MP noted that the bill contains no investment allowances like those that oil and gas companies can use to set against windfall profits when paying the Energy Prices Levy, which was introduced by the chancellor of the exchequer at the time, Rishi Sunak, earlier this year.

Jones wrote: “The cost-plus revenue limit presumably ought to be designed in such a way that it does not stymie investment in renewable electricity generation at precisely the time when we need more capital flowing into these projects.

“The need to encourage investment was taken into account for the previous, smaller windfall tax on oil and gas companies. Incentivising future drilling for gas, whilst not incentivising the installation of renewable technologies, seems to be at odds with the government’s intention to reduce our dependency on fossil fuels.”

Jones expressed concern that the cap, which he described as a “significant market intervention”, has been included in the Energy Prices Bill without details on how it will work and how long it will last.

He asked Rees-Mogg a series of questions, including whether the government will be setting the cap at a level that does not make the UK less attractive to investors than the EU and whether he could confirm if the revenue cap will be “no more punitive” than the oil and gas windfall tax.

Jones’ letter was published as energy companies warned that the bill gives the secretary of state what one supplier has described to Utility Week as “sweeping and enduring powers” to alter supply licences and regulation right across the industry and without time limit.

They company said these provisions mean Ofgem and the entire licensing and regulatory regime can be “effectively” bypassed, without any safeguards or time constraints and no consultation or appeal process for those affected by any decision.

The bill, which also includes provisions to put energy costs support for businesses and households on a statutory footing, were due to be considered by the House of Commons on Monday afternoon (17 October) before going to the House of Lords on Wednesday with a view to being passed before the end of the week.