Shares in listed renewables funds rose today after the government announced it would take the least damaging option in changing the inflation link in its incentive payments.

Publishing its response to the indexation consultation it launched in November, the Department for Energy Security and Net Zero said it had opted for a simple, immediate switch from the retail prices index (RPI) to the lower consumer prices index (CPI) in renewable obligation certificates (ROC) and feed-in tariffs (FIT), rather than the more onerous freezing of the subsidy to 2035 to correct what officials viewed as historic overpayments to renewable operators under ROC and FIT.

Responding to warnings from institutional investors such as Schroders Greencoat that the proposals risked undermining investor confidence while failing to lower consumer bills by driving up the cost of capital for new infrastructure investments, the government said: “Option one is the least disruptive approach, avoiding the prolonged uncertainty and more severe impacts associated with a temporary freeze, while still delivering savings to energy consumers to support cost-of living.”

Renewable infrastructure investment companies that were most vulnerable to option two gained on the news that they would avoid big reductions long-term income that would have hit the valuations of their assets. The switch to CPI will take effect in April.

Next Energy Solar (NESF) rallied 4.7% to 51.3p as it confirmed its earlier estimate of a 2% knock to net asset value of 2p per share.

Ross Grier, chief investment officer of NextEnergy Capital, NESF’s fund manager, said: “Whilst the selected option is the less disruptive of the two proposed, we remain disappointed that the government is taking steps that are expected to harm investor confidence in Great British infrastructure at a time when we need more capital than ever to deliver the energy transition in a timely fashion.”

Bluefield Solar Income (BSIF) gained 3.8% to 71.3p and Greencoat UK Wind (UKW) added 2.8% to 99.7p, the latter buoyed by hope of a 13th year of RPI-linked dividends.

UK Wind considering government decision

In an end-of-year statement of its net asset value (NAV), UK Wind said it would confirm its 2026 target dividend after considering the result of the consultation. (Update: the following day it switched its dividend policy from RPI to CPI.)

The £2bn investment company paid 10.35p per share in dividends last year putting its shares, which trade at an all-time low and 31% below NAV, on a 10% dividend yield.

Lower power prices led by falls in gas knocked NAV 3.3% or 4.6p lower to 136.1p in the three months to 31 December. While low wind speeds meant energy generation came in 8.5% below budget last year, the fourth quarter showed a small improvement with a budget shortfall of 1.6%. Net cash generation of £291m covered dividends by 1.3 times.

Damage to confidence

Richard Stone, chief executive of the Association of Investment Companies, was unhappy with the outcome, saying it drove “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,'” he said.

Our view

James Carthew, head of investment companies research at QuotedData, said: “I have to ask why the government bothered to hold a consultation. Respondents clearly rejected the premise of both proposals, warned about the potential long-term negative impact on funding of future infrastructure projects, and highlighted the negligible benefit. To only ignore that and press ahead, even with the least worse option, seems perverse. We highlighted the likely impact on net asset values on the 7 November 2025 news show.”

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