Proposed changes to renewables indexation amount to ‘redistribution by stealth’, say Gravis

Gravis’s investment team is warning that government proposals to alter the inflation indexation of historic renewable energy subsidies would amount to a “redistribution by stealth” from UK savers and pension holders – all for a reduction in household bills equivalent to little more than the cost of a cup of coffee.

The Department for Energy Security and Net Zero (DESNZ), Scottish Government and the Northern Ireland Executive have proposed plans to change the way older renewable energy schemes – the Renewables Obligation (RO) and Feed-in Tariff (FiT) – are adjusted for inflation. The proposed switch from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) would affect projects that have already been operating for years under long-term contracts.

Gravis argues that changing indexation halfway through the 20–25-year support periods would undermine investor confidence in the UK and deliver almost no meaningful benefit to consumers.

“This would be a redistribution by stealth,” said Haohua Wu, Associate at Gravis. “These assets are owned in large part by UK pension funds, insurance companies and UK-listed investment companies – in other words, by ordinary savers. Reducing the value of their long-term investments would erode trust in the UK as a stable and predictable market for infrastructure capital. The financial benefit of such dramatic policy change could also be minimal, with some estimates suggesting savings of just £3-£5 per household per year – roughly the cost of a cup of coffee”

Under the government’s consultation, two options are being considered:

• An immediate switch to CPI indexation from April 2026; or
• A temporary freeze of inflation-linked increases until CPI-based inflation “catches up” with the higher RPI level.

Gravis believes both approaches would set a dangerous precedent by retrospectively changing the financial terms of existing contracts, potentially distorting market signals and project valuations.

Phil Kent, CEO at Gravis, added: “While we understand the desire to align government policy with more modern inflation measures, this is not the way to do it. The overall cost of the legacy subsidy schemes is already declining and will start to fall sharply from 2027 as older projects reach the end of their support periods. These payments naturally unwind over time and don’t need to be cut mid-stream.”

Gravis also notes that environmental levies make up only a small share of energy bills compared with wholesale gas prices and network costs. The recent surge in bills has been driven almost entirely by high global gas prices, not renewables.

Wu continued: “If the goal is to ease the pressure on bills, a fairer approach would be to move the cost of legacy renewables support off electricity bills entirely. This could perhaps be achieved by funding it through general taxation or a small levy on gas consumption. That would reflect the real cost drivers and avoid penalising UK investors who helped finance the transition to clean energy. Another option is to lower existing subsidy levels but to extend scheme durations, balancing the protection of investor interests with lower bills.”

Gravis stresses that the UK’s early support for renewable energy was never a handout, but an investment that continues to deliver long-term benefits: cleaner air, lower carbon emissions, greater energy independence and cheaper electricity for future generations.

Kent concluded: “Revisiting these schemes now won’t bring meaningful savings for households, but it could damage investor confidence just when the UK needs private capital most. By their own estimates, the government needs £40bn of investment per annum to deliver its net zero goals.

“The impact of an uncertain policy outlook, combined with retrospective changes to existing support mechanisms will at worst make the UK uninvestable, and at best increase the risk premium applied by investors for UK exposure. Ultimately that goes to the levelised cost of electricity and costs incurred by consumers.

“Renewables are a success story and the government should be careful not to unpick it.”