MARKET REPORT: Revenue cap fears puts wind up renewable energy firms


MARKET REPORT: Revenue cap fears puts the wind up renewable energy companies as talks between ministers and the sector break down

Shares in electricity generators plunged amid fears over a windfall tax on wind and solar companies.

Renewable energy companies have been reaping massive profits from high energy companies following Russia’s invasion of Ukraine and ministers have run out of patience.

It is expected this week that the Government will unveil legislation enforcing a revenue cap on renewable energy generators after talks between ministers and the sector broke down.

Renewable energy companies have been reaping massive profits from high energy costs following Russia’s invasion of Ukraine

Firms are pushing back against the move.

They are believed to be willing to accept a tax on profits, but reject a cap on revenues that could not be offset against future investment – a perk enjoyed, controversially, by oil and gas companies.

Shares in Centrica fell 2.7 per cent, or 1.9p, to 69.04p, Drax slumped 4.9 per cent, or 27.5p, to 532.5p and SSE slid 0.4 per cent, or 5.5p, to 1494p. Shares in Greencoat UK Wind, a big investor in renewables projects, plunged 8.4 per cent, or 12.7p, to 138.3p.

EDF Energy, RWE and Scottish Power could also be in the firing if the measure is ushered in.

The move would mark a dramatic change in policy given Liz Truss rejected such a windfall tax during the Tory party conference.

Earlier this year during the leadership hustings in Leeds, she told voters: ‘I don’t believe in windfall taxes, because they put off future investment.’

It also follows the measure imposed on North Sea oil companies such as BP (down 1.4 per cent, or 6.65p, to 462.45p) and Shell (down 0.8 per cent, or 18p, to 2327.5p).

‘The Government seeking to unilaterally impose a revenue cap on the renewable generators is akin to the referee coming out for the second half with a different ball as one side didn’t like the half-time score,’ said Investec analyst Martin Young.

Stock Watch – Quiz

Quiz shares tumbled after it warned that uncertainty over the cost-of-living crunch could take a toll on demand for its flashy dresswear.

The Glasgow-based fashion retailer said that ‘it remains uncertain what impact the current cost-of-living pressures will have’.

It clouded an otherwise positive update. Quiz, which has 62 stores in the UK, reported a 37.2 per cent rise in sales to £49.4million in the six months to September. 

But shares fell 10 per cent or 1.15p, to 10.38p.

Meanwhile, Credit Suisse analysts said Drax is ‘most-exposed’ to such a policy, adding: ‘The Government has no fiscal alternative but to take away the large economic profit of generators. And the companies would have far less control over a revenue cap.’

AJ Bell investment director Russ Mould said: ‘There is a fear this would deter investment in new renewable energy projects, which in turn reduces the opportunities for energy companies to make additional profits in the future, something which does not go down well with investors.’

The FTSE 100 fell 0.5 per cent, or 31.78 points, to 6959.31 and the FTSE 250 slid 1.3 per cent, or 227.99 points, to 17125.29.

Trying to bring calm to the markets appeared to be high on the Government’s agenda.

Chancellor Kwasi Kwarteng has brought forward the date to unveil his fiscal statement, to October 31 from November 23, as he looks to shed light on how he will pay for his billion-pound package of tax cuts while also reducing debt.

The OBR’s independent forecasts will also be published at the end of October.

In the top tier, DS Smith shot up 12.1 per cent, or 29.3p, to 271.1p after it hiked its guidance. The packaging group now expects to report profit of at least £400million for the six months to the end of October.

It means DS Smith’s performance for the year is forecast to be ahead of previous expectations even as it experienced a slight fall in corrugated box volumes.

There was also good news for investors in M&G after its boss and chairman together snapped up almost £460,000 of shares.

In a vote of confidence for the investment group, newly appointed chief executive Andrea Rossi bought 175,000 shares at 170p each last Friday. Chairman Edward Braham purchased 95,000 shares at 170p on the same day.

Shares in M&G rose 2.9 per cent, or 4.75p, to 170.55p.

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