The Association of Investment Companies has criticised the Government’s decision to link the Renewables Obligation scheme to a lower inflation measure.
The UK Government and devolved governments announced on Wednesday that payouts from the scheme will be aligned with the consumer price index rather than the retail price index.
The scheme has sought to incentivise UK renewable electricity generation since 2002 through a system of tradable green certificates. The Renewables Obligation and the Renewables Obligation Scotland were introduced in 2002, while the Northern Ireland Renewables Obligation was introduced in 2005.
It is closed to new applicants but some power generators in the scheme are due to receive payments until 2037.
In October 2025, the UK Government published a consultation, proposing to change the way that all schemes are indexed to inflation in order to “bring them into line with regulatory best practice” as well as reduce overall scheme costs in the future.
The consultation proposed two options; the first was a change in inflation indexation on the scheme from RPI to CPI, to come into effect in April 2026. The second was a temporary freeze on the RO buy-out price at the 2025/26 level, taking effect from April 2026.
The UK Government and devolved governments said the decision to change inflation indexation is designed to save taxpayers’ money and cut consumer energy bills.
They stated: “We consider that this approach strikes the most appropriate balance between reducing the cost burden on consumers while maintaining strong investor confidence in the UK’s renewable energy sector.”
However, the AIC has argued that it will damage investor confidence in the market.
Richard Stone, chief executive of the Association of Investment Companies, said: “This decision drives a coach and horses through the Government’s commitment to provide a safe and predictable investment environment for renewables.
“Changing the terms of the scheme damages investor confidence in the British Government as a business partner. It undermines the Government’s ambitions to attract investment to make Britain a clean energy superpower. Over the long term, rather than reduce costs, households will face higher charges as investors lose faith and the cost of capital to fund future projects increases.”
Will Argent, manager of TM Gravis UK Infrastructure Income and Clean Energy Income fund, said: “As investors, our preference would have been for no change to the current basis of indexation, as both proposals were detrimental for investors in RO assets and the likely benefits for consumers relatively small. That said, it became increasingly clear that the Government was likely to proceed with one of the options.
“Against that backdrop, option one is the least damaging outcome in terms of its likely impact on future revenues from existing RO assets. While it does chip away at confidence in the UK’s regulatory stability, it does not, in my view, undermine it. The longer-term implications for future investment decisions or the cost of capital are difficult to quantify, but it is unhelpful at the margin.”
Argent said that importantly, the removal of uncertainty is a positive for listed renewable energy companies. Markets had priced in the risk of a more punitive outcome, and the positive share price reaction reflects a sense of relative relief.
“The decision removes a major overhang for the sector and could also help unlock asset transactions, as buyers now have clearer visibility on the revenue framework at a time when many listed companies are looking to dispose of assets to strengthen balance sheets,” he added.
Main image: jason-blackeye-nyL-rzwP-Mk-unsplash
