Ørsted A/S announced an increased operating profit for Q1 2023 of £814 million, but said that lower prices and the UK revenue cap had offset its increased renewable generation from new assets.
The cap on revenues from renewable energy projects was criticised in October 2022 by trade body Solar Energy UK, who argued that it sent a poor signal to investors and would have a ‘perverse’ impact on the sector.
The Energy Prices Bill brought in a new temporary Cost-Plus Revenue Limit in England and Wales, which effectively acts as a windfall tax on renewable energy generator revenues.
“So-called merchant installations, unshielded from changes in electricity prices through CfDs, will be most affected by the new regime,” Solar Energy UK said in November 2022.
Ørsted said it was “very pleased with the Q1 2023 results, where our offshore sites earnings are back on track as the key EBITDA driver.”
The company’s offshore power generation increased by 15 % to 5.2TWh in Q1 2023, with revenues increasing by 12%. Meanwhile, onshore power generation increased by 17% compared to Q1 2022 and amounted to 3.8TWh. However, this increase was “offset by lower prices, especially in Ireland and the UK where a revenue cap was introduced in Q4 2022, and by higher development costs as our portfolio is expanding.”
The Energy Prices Bill decoupled the cost of low-carbon electricity from that of gas prices through a new temporary Cost-Plus Revenue Limit in England and Wales.
At the time, RenewableUK’s chief executive Dan McGrail said: “we are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK. A price cap acting as a 100% windfall tax on renewables’ revenue above a certain level, while excess oil and gas profits are taxed at 25%, risks skewing investment towards the fossil fuels that have caused this energy crisis.”
Other renewable energy companies like Foresight Solar are also reporting decreased valuations. According to Foresight Solar, near-term power price and revenue forecasts for the period between 2023 and 2026 were notably lower as volatile energy prices begin to stabilise. The fall in near-term power prices in the UK had also been lowered via the introduction of the Electricity Generator Levy.
Asked about the impact of the Electricity Generator Levy on their finances, Paul Haines, head of UK media relations at Ørsted, said that while he could not give a specific figure for the impact of the levy: “We support the principle of the levy in terms of taxing windfall revenues but it is unlikely to impact our decision-making in terms of future investment in the UK.”
Haines added that over the past decade, Ørsted had invested £15 billion for baseline offshore wind investments to be committed within the next two and three years.
“Our assets are multi-decadal investments and we continue to have faith in the long-term stability of the UK market. However there is also clearly a need for the UK Government to ensure the UK remains an attractive destination for international investors and guarantee the tens (if not hundreds) of billions of investment into the UK,” Haines said.