Gov makes final decision on renewable subsidy change

The UK government has today unveiled its long-awaited decision on changes to the ‘renewables obligation’ (RO) scheme, which has left green energy trusts – and their investors – in the dark for several months.

A consultation into the subsidies designed to incentivise renewable electricity generation was launched in late October, sending trusts investing in the sector spiralling. Changes to payments paid by the government to energy suppliers had not been expected until 2030 so news that they could be reduced from as early as April 2026 took the sector by surprise.

Many rely on RO subsidies and feed-in tariffs (FIT) – which the government will make a separate decision on ‘shortly’ – for at least half of their income, leading to concerns that they may need to re-evaluate their long-term investment strategies.

The government presented the sector with two options; a change in indexation from the retail prices index (RPI) to consumer prices index (CPI) in April this year, or a temporary freeze of RO pay-outs at the current level until RPI catches up with CPI.

Whilst half (48%) of the 247 participants who took part in the government’s consultation opposed any change whatsoever, almost all agreed that the former option was the least destructive.

They noted that freezing subsidies under option two would be ‘far more damaging and impose far greater financial stress on RO assets’, with renewable operators saying it would fundamentally ‘jeopardise their financial viability’.

The Department for Energy Security and Net Zero said: ‘We consider 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.

‘We consider that this approach strikes the most appropriate balance between reducing the cost burden on consumers while maintaining strong investor confidence in the UK’s renewable energy sector.’

The average trust in the Renewable Energy Infrastructure sector has seen its share price slump 6.5% since the consultation was launched, with their discounts widening to 36.4%. While any change is unhelpful to these investment companies, removing the cloud of uncertainty that has lingered over the sector in recent months will be welcomed, according to Peel Hunt analyst Markuz Jaffe.

‘The conclusion of the consultation should help to clear at least one area of risk and concern for investors when appraising affected assets, with the renewables peer group having suffered from negative sentiment in recent months,’ he said.

‘Additionally, the reduced uncertainty may help clear the way for an improvement in underlying transaction volumes, as highlighted by Greencoat UK Wind (UKW).’

The £2.1bn trust’s net asset value was down 3.3% in the final quarter of 2025, with its share price down an even steeper 9.9%.

Jaffe said the looming RO consultation over the period was ‘unhelpful’ and ‘hampered’ UKW’s plan to sell assets, but hopes its conclusion will ‘clear the way for further disposal activity’.

Shares in the biggest renewable energy infrastructure trusts rallied following today’s announcement, with UKW up 2.3%, Renewables Infrastructure Group (TRIG) rising 2.8% and Bluefield Solar Income (BSIF) gaining 3.6%. 

‘Both options carry risks for harming investor confidence’

The Department for Energy Security and Net Zero admitted that any retrospective change to long-term subsidy agreements is likely to damage investor confidence, but hopes the lighter option will have a lesser impact.

Peel Hunt speculated last year that option two was never a genuine consideration and was only included to make the former route appear more palatable.

Today’s report said: ‘In proceeding with option one, the governments is seeking to minimise further uncertainty for legacy assets and send a clear signal that the UK remains committed to ensuring a stable and transparent regulatory environment.

‘This approach reflects our wider commitment to ensuring that the UK retains its reputation as a safe and predictable investment environment for renewables.’

However, this moment of respite for the renewables sector may be short lived, with the government planning to launch another consultation later this year into replacing the RO scheme altogether.

It will consider transferring over to a fixed price certificate (FPC) scheme from 2027 as generators supported by RO retire up until 2037.

The RO scheme was applicable to green energy suppliers between 2002 to 2017, but the FPC will seek to support new providers over the next 20 years.