Solar companies consider reduced income to help UK households

On the day Liz Truss was named the new UK prime minister, Solar Energy UK said its members were considering backing a call to reduce fixed-price incentive payments under the historic Renewables Obligation (RO) payment scheme.

Under the RO program, which closed in 2017, renewable energy generators receive a fixed tariff for every kilowatt-hour they produce and then sell the power on the open market, where the gas crisis has seen prices skyrocket. That has prompted calls from across the political spectrum to curb excessive energy company profits, with suggestions including a windfall tax on generators and a price ceiling for electricity.

The UK Energy Research Centre has suggested two measures to cap the price clean energy generators would receive for the power they produce. One proposal involves generators receiving a fixed final price for their power, rather than being able to trade on the open market, whilst retaining their fixed RO incentive payments per kilowatt-hour.

A second suggestion would see RO contracts exchanged for deals in line with the current contracts for difference (CFD) incentive scheme. Under CFD contracts, applicants competitively bid to secure the lowest guaranteed “strike price” for the electricity they generate. Generators receive the wholesale electricity price for the power they produce and, when that figure is below the strike price agreed through the auction tender, the government tops up the difference. When the money received from the wholesale market for the clean electricity is higher than the strike price – as it is now and is likely to be for some time – the generator hands the difference back to the government.

With both proposals already endorsed by RenewableUK and wider membership association Energy UK, Solar Energy UK said this week that its members would be open to such reform.

“We have begun considering the proposals to reform support for renewable power, which we will need to be sure will function as intended to both support the sector and combat the rising cost of living,” said Solar Energy UK Chief Executive Chris Hewett in a press release. “There is much to be worked through on the detail, but senior industry players are very supportive of the principle.”

Coming up with a voluntary approach to limit excessive profits could help the solar industry head off the threat of a windfall tax which would be far more detrimental to investor confidence, according to Solar Energy UK. The trade body was also at pains to point out the fact that solar energy tends to be sold far in advance has meant generators are yet to receive the profits bonanza which has been reported among fossil fuel companies of late.

Prime Minister Truss, whose appointment was confirmed this week after a vote by Conservative Party MPs, has refused to specify how she plans to help UK households and businesses with soaring energy bills, other than by reducing taxes. She pledged to set out her strategy on the UK cost of living crisis this week.

As environment secretary, new prime minister Truss was an outspoken critic of solar power because of the visual impact of panels, their potential intrusion into agricultural land, and because of the cost their incentive schemes add to household bills after energy suppliers pass on such commitments to consumers.