Subsidy cuts will barely impact households but decimate renewables

Government policy to reduce electricity bills could have a devastating effect on the renewable energy sector, but is estimated to save households just £3 a year, according to the Department for Energy Security and Net Zero (DESNZ).

Plans to cut back subsidies to the green infrastructure sector have taken their toll on trusts investing in renewables energy despite having minor benefits for consumers.

Four trusts that receive half or more of their income from government subsidies through either renewable obligation certificates (ROCs) or feed-in tariffs (FiTs) have slumped over the past month since changes were floated: Bluefield Solar (BSIF ), Foresight Solar (FSF ), Foresight Environmental Infrastructure (FGEN ), and NextEnergy Solar (NESF ).

Returns of renewable energy infrastructure trusts since ROC and FiT consultation announcement

Association of Investment Companies, 26/11/25

The crux of the issue lies in the indexation of subsidies paid to renewable energy infrastructure operators such as wind farms and solar projects, with DESNZ proposing a switch from the retail price index (RPI) measure of inflation to consumer price index (CPI).

While it may not seem significant on face value, CPI typically grows at a slower pace, which in turn reduces subsidies.

DESNZ argues the switch will reduce consumer bills, but Haohua Wu of Gravis Capital, which invests in renewable energy via its GCP Infrastructure (GCP ) and GCP Asset Backed Income (GABI ) trusts, said the savings for households will be minimal but the impact on the sector will be dramatic.

Changing the indexation half-way through renewable support that is in place for 20-25 years undermines the sector and was ‘redistribution by stealth’, she said.

‘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.’

Wu challenged DESNZ over whether an indexation switch would save consumer money on electricity bills, noting that ‘some estimates suggesting savings of just £3-£5 per household every year’.

She argued that environmental levies make up a small part of energy bills versus wholesale gas prices and network costs, and the surge in energy prices is down to high global gas prices, not renewables.

GCP shares have fallen 5.5% over the past month while GABI shares are up 3.8%.

Market distortion

Subsidies were paid to incentivise private capital to invest in clean energy projects in a bid to reduce the country’s reliance on fossil fuels and help the government reach its net zero targets.

ROCs currently underpin projects that make up 30% of the UK’s entire electricity supply and has encouraged billions of pounds to be invested into green energy through investment companies, which hold £12bn of green energy assets.

The government is now consulting on two different ways to change the subsidies for projects that have been operating for years under long-term contracts; the first being an immediate switch to CPI from April 2026, and the second being a temporary freeze of inflation-linked increases until CPI inflation catches-up with the higher RPI level.

Both options will have an impact on the net asset value (NAV) of trusts in the sector, with NextEnergy anticipating a 2% reduction in NAV from the first proposal but a much large 9% hit from the second.

Stifel analyst Iain Scouller said the second option will have a ‘more significant impact’ and the first is more likely to be implemented.

‘We do wonder if option two has been put forward with the aim of making option one feel as though it is a “win” for the sector,’ he said.

Scouller also questioned whether more trusts could get dragged into the indexation uproar, with similar changes extended to investors in UK private finance initiatives (PFI) such as HICL Infrastructure (HICL ) and International Public Partnerships (INPP ), whose projects also assume RPI linkage until 2030.

‘A lot will depend on how legally watertight the PFI contracts are on the indexation mechanism that can be used, with some in the industry suggesting they may be more watertight than the renewable subsidy mechanisms,’ he said.

Overall, Scouller said the changes were ‘not a good look’ for the government, which needs private capital to finance its infrastructure and renewable investment ambitions.

‘Investors are likely to be wary of allocating further capital to the sector and are likely to demand a risk premium in case further changes come out of the blue, such as changes to subsidies,’ he said.

Industry backlash

Gravis said both options set out by the government set a ‘dangerous precedent’ for retrospective changes to the financial terms of existing renewables contracts, ‘potentially distorting market signals and project valuations’.

Phil Kent, chief executive of Gravis Capital, said subsidies were given not as a ‘handout’, but as an investment with the long-term benefits of ‘cleaner air, lower carbon emissions, greater energy independence and cheaper electricity for future generations’.

Revisiting the scheme won’t result in ‘meaningful savings for households’ but could ‘damage investor confidence when the UK needs private capital the most’, he said, especially when the government is estimating it needs £40bn a year of investment 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,’ he said.

‘Ultimately that goes to the cost of electricity and costs incurred by consumers.’

A swathe of green energy infrastructure trusts have added their voices to a call for the government to reconsider its proposals.

Richard Stone, chief executive of the Association of Investment Companies (AIC), said trusts had ‘in good faith’ modelled their returns and committed investor capital to projects on the strength of the subsidies.

‘The impact of this U-turn midway through an agreement would erode investor confidence in the British government as a business partner, and these proposals must be withdrawn,’ he said.

Tony Roper, chair of Foresight Solar, said the Spanish government made similar revisions in the 2010s and ‘severely eroded investor confidence, triggered billions in legal claims, and caused a sharp decline in renewable infrastructure investment’.

He added that many of Foresight’s investors are pensioners and the consultation had already caused ‘hundreds of millions of pounds in losses for them’. The changes would ‘lead to more damage for the very people the government is trying to help’.

Michael Gibbons, chair of Bluefield Solar Income, said changing the subsidies may end up having the opposite effect for household bills.

‘Rewriting obligations after agreements have been made risks eroding confidence, is likely to drive up the cost of capital, and so ultimately could mean households face higher energy bills. For these reasons, the government should change course,’ he said.