“I think we [the UK] have created skewed distribution,” said Domenico Tripodi, partner at the investment company, AIP Management, speaking at the Renewable Energy Revenues Summit 2023 (RER).
“We have been through, and we still are somewhat going through, exceptional times, which might require exceptional measures. But to me, the fundamental point is: are we providing market setting for the Generation X that we are planning to have In the future?
“To me the answer is no. And things like the revenue tax, the windfall tax, that just suggests the system doesn’t work in itself.”
Speaking on the ‘Optimising for Renewable Energy Revenues & Costs Despite Regulatory Change” panel on the second day (7 June) of RER, Tripodi discussed the damaging effects of the renewable windfall tax.
The Electricity Generator Levy imposes a 45% tax on ‘exceptional profits’ from renewable electricity generator revenues. This is 10% more than the 35% windfall tax imposed on oil and gas through the Energy Profits Levy.
This higher windfall tax has been criticised both by the public and members of the energy sector, who feel that unfair bias is shown towards oil and gas, whilst renewable investment is being wilfully deterred.
Discussing what were dubbed the UK’s ‘short-term’ solutions to incentivising renewable investment, such as those announced during the Government’s ‘Green Day’ Tripodi added:
“You cannot solve structural issues with ad hoc short term measures.”
Fellow panellist, Peter Dickson, partner at the fund manager Glennmont Partners, agreed with Tripodi calling these measures a “knee jerk reaction” to the current political climate.
“We’re calling it an ad hoc intervention, which creates uncertainty and a lack of confidence. When I make an investment decision with our investors, I like to know that you’ve got predictability of what is going to occur in future and governments are not going to make ad hoc interventions,” continued Dickson.
“I know these were exceptional circumstances which could not be predicted. But we take that into account. And we do take into account that there will be upside and there will be dark side and they have to balance and asymmetry is not a good way to defraud investors to make this happen.”
One of the consultations in place to help both accelerate and accommodate the growth of renewables in the UK is the Reviews of Electricity Markets (REMA), which had its first consultation summary released in March 2023.
A market arrangement that was heavily discussed during the consultation was the prospect of nodal or zonal pricing in which energy prices are determined by location.
This structure has received both backing and criticism from members of the energy sector. For example, Energy Systems Catapult and ESO hailed nodal pricing as an attractive solution to futureproofing the nation’s energy market; however, fears have been expressed over how this structure may induce a postcode lottery or else a loss of revenue for generators.
Alex Howard, head of flexibility markets at UK Power Networks believed that nodal pricing would not be the answer for the UK and that citing nodal market successes in various states within the US is not a useful comparison.
Speaking on yesterday’s panel Howard said: “The UK is relatively small and compact market and it’s not so easy to compare to any of the networks in the United States [which use nodal pricing such as Texas], there’s a lot more liquidity than there was networks and therefore, a nodal system is reasonably stable.
“I’m not sure if that’s translatable into the UK. My concern about the implementation of a nodal system is that it will cause a great deal more volatility. If you’re connecting inside one or more of these nodes, we’re going to have a much reduced liquidity in our power markets. There’s going to be a lot of volatility of pricing at the same time and then trying to make a prediction for sale for a 25, 35 or 40 year time horizon is going to be much more difficult.
“I understand why the locational indicators are a necessity but to do it on the basis of an old system I think will lead to unintended consequences which will make it difficult for investment decisions.”
