Without a windfall tax on energy firms, a cap on nuclear and renewables is urgently needed
There will be no new windfall taxes on energy firms to help fund the £100bn-plus household and business rescue package, the prime minister has said – a predictable answer given her past statements. But what about the obvious alternative: a cap on the price of electricity that is generated by firms whose costs are unaffected by soaring gas prices?
Not every nuclear, wind and solar project is currently making fat and unexpected profits, but many are thanks to an outdated system that ties their revenues to the marginal price of wholesale gas. A decoupling of gas and electricity prices is desperately needed – and the process can’t wait until the completion of the current leisurely official review.
Over in euro-land, they’re on the job. Draft proposals are being shuffled around Brussels to set a wholesale price cap for non-gas generators. An announcement is due on Friday, with the aim of redirecting excess revenues towards member states’ various support packages.
And we know the UK government has done its own emergency work, because last week’s chancellor, Nadhim Zahawi, said so. It would be a version of the idea kicked around by various academics, consultancies and even the industry: oblige renewables generators operating under old-style “renewables obligations certificates”, which are currently supremely lucrative because they pay a premium above the wholesale energy price, to switch to contracts-for-difference (CfDs). In the latter arrangement, windfall profits don’t arise: revenues above an agreed “strike” price flow, in effect, to public coffers.
Since conversations with the generators were being conducted by Kwasi Kwarteng – last week’s business secretary, this week’s chancellor – the new administration should be on top of
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