The temporary Cost-Plus Revenue Limit for low-carbon electricity generators in England and Wales is planned to come into force from the start of 2023, under powers in the Energy Prices Bill introduced in Parliament on 12 October 20221. The Department for Business, Energy and Industrial Strategy said the measure is intended to break the link between high global gas prices and the revenue that low-carbon generators receive1.
The government said the full scope of coverage is still being determined, but that the limit will apply to low-carbon generating assets not currently covered by a Contracts for Difference1. The temporary revenue limit will apply in England and Wales, and the government said it is liaising with the Scottish Government to confirm whether the measure will extend to Scotland; the legislation allows for a temporary revenue limit to apply in Northern Ireland1. The precise mechanics will be subject to a consultation to be launched shortly, and the government said it has been working closely with industry on the detail ahead of it coming into force from the start of 20231.
The government said the limit will still allow generators to cover their costs and receive an appropriate revenue reflecting operational output, investment commitment and risk profile, and that it is considering an arrangement that allows generators to keep a proportion of their revenue above the limit1. It said the intervention differs from a windfall tax because it will be applied to excess revenues generators are receiving, as opposed to applying to all profits1. The government also said it recognises the importance of dispatchable and baseload generation for security of supply, and that low-carbon technologies with higher input costs, such as biomass and nuclear, are being considered as part of the detailed policy design1.
The government described the measure as temporary, to deal with exceptional market conditions driven by high global gas prices in light of Russia's invasion of Ukraine, and said it is anticipated to endure until markets return to normal or generators move onto other market arrangements, such as a Contract for Difference1. It said the limit is to be set in advance of the policy taking effect, with revenues received by generators anticipated to be considered at the end of a settlement period1.
"The temporary revenue limit will apply in England and Wales, and we are liaising with the Scottish Government to confirm whether the measure will extend to Scotland."
| Measure | Detail as stated |
|---|---|
| Coverage | Low-carbon generating assets not currently covered by a Contract for Difference; full scope still being determined1 |
| Nations | England and Wales; Scotland under discussion; legislation allows for Northern Ireland1 |
| Start | Planned from the start of 20231 |
| Mechanics | Subject to a consultation to be launched shortly1 |
| Duration | Temporary, anticipated to endure until markets return to normal or generators move to other arrangements1 |
Why it matters for households
Wholesale electricity prices in the UK market are set by the most expensive form of generation, presently gas-fired generation, so low-carbon generators have been receiving abnormally high prices while consumers pay more for electricity generated from renewables and nuclear even though it often costs less to produce1. The government said the limit has the potential to save billions of pounds for British billpayers1. The measure sits alongside the wider regulation and policy framework for energy, and its stated aim is that consumers pay a fair price for low-carbon energy1. The government has not reported how any saving would reach an individual household bill, and no figure for the limit itself has been published1.
What happens next
A consultation on the precise mechanics of the temporary Cost-Plus Revenue Limit is to be launched shortly1. The government said it is also legislating for powers that would allow it to consider running a voluntary Contracts for Difference process for existing generators in 2023, which would grant generators longer-term revenue certainty and safeguard consumers from further price rises1. The next allocation round of the Contracts for Difference support scheme for new generation will launch in 2023 as planned1.