Draft Renewables Obligation (Amendment) Order 2026

Michael Shanks Excerpts

Wednesday 11th March 2026 General Committees

[The Minister for Energy (Michael Shanks)]

I beg to move,

That the Committee has considered the draft Renewables Obligation (Amendment) Order 2026.

It is a pleasure to serve under your chairship, Mrs Barker. The draft order was laid before the House on 2 February, under the affirmative procedure.

We are all acutely aware, particularly at this moment in time, that households and businesses across the country are feeling the effects of global energy volatility. That is why the Government remain absolutely focused on finding sensible and targeted efficiencies to reduce the costs of the UK energy system, while ensuring that we maintain the investor confidence that is critical to building the system we need for the future.

The order changes how we uprate the cost of the renewables obligation scheme, switching from the retail price index to the consumer price index from 1 April. CPI offers a more accurate reflection of real-world price changes than RPI, which tends to overstate the rate of inflation. In simple terms, that means that the costs of operating the scheme will grow more slowly in the years ahead, easing pressure on the consumers who pay for it through their energy bills. The change forms part of wider efforts to generate efficiencies across the energy system, reduce costs for businesses and ease the pressure on domestic bills.

This change follows a joint public consultation undertaken by the UK Government with the Scottish Government and the Northern Ireland Executive, who operate their own renewables obligation schemes. The consultation closed in December and a response was published in January. We recognise that the proposed options generated significant concern and much disagreement from renewables obligation stakeholders. We understand the points raised about the need for policy stability and to ensure that we have strong investor confidence in the UK.

But it is precisely because the renewables obligation scheme has been such a success—it now supports over 30% of the UK’s energy generation—that we must ensure its costs remain proportionate and sustainable as it continues to operate. The scheme has been instrumental in building the renewable capacity that we rely on, and we want it to keep doing that, but without placing unnecessary burdens on bill payers.

By implementing the change in time for the new compliance year in April, we can secure estimated savings of £1.9 billion over the remaining lifetime of the scheme, which works out at around £180 million a year for the next 11 years. These are meaningful savings for consumers, delivered through a sensible and reasonable change to the electricity generation scheme.

Our approach is one of balance: it reduces the cost pressures on households and businesses, but continues to provide the stable environment for long-term investment in the renewable sector. As we all know, the world around us is becoming increasingly unstable. The only sustainable way to shield hard-working people around the UK from global energy shocks is to accelerate our transition to clean, home-grown energy. That means not only deploying new renewable capacity, but ensuring that every part of the existing system is as fair, efficient and affordable as possible.

The order before us is a small but extremely important step in that direction. It reflects a pragmatic, consumer-focused approach that underpins our energy strategy: looking for opportunities to make the system better for British people, while maintaining the confidence of the investors who are so important for building the infrastructure of the future. Subject to the will of Parliament, the arrangements will come into force the day after the regulations are made. I commend the draft order to the Committee.

--- Later in debate ---

[Michael Shanks]

I always welcome unanimous support from the House for the Government’s energy policy, and it sounds like we will have that this afternoon, which I appreciate.

I always thank the shadow Secretary of State, the right hon. Member for East Surrey, for her lessons, although they often do not involve her own time in the Government, or the Conservatives’ 14 years in government. If it was so important to reform the renewables obligation, she had a number of years in which she might have done that, but she did not. It is now, after being Government, that this is all suddenly coming forward.

There is an important point about the lessons learned from crisis like this, and this is a moment for us to learn the right lessons. Only four years after the price spikes caused by the Russian invasion of Ukraine, when the fossil fuel market did broadly what it is doing now, the lesson is to move even faster away from gas, but the Conservative party is doubling down and saying that now is the time to invest even more in gas. That is the wrong lesson to learn from this crisis. Hoping that, at some point in the future, the wholesale price will come down to a point that justifies that argument is not what we should be doing with the bills of our constituents and businesses across the country. We should be building a system that protects us from volatility, and that is what we are doing.

The Liberal Democrat spokesperson, the hon. Member for South Cambridgeshire, made the point well that the UK benefits from having a safe and predictable environment for investors. That is really important, because if that changes, we will see the tens of billions that have been invested in this country in the past 18 months go somewhere else, and will also see the cost of capital—of building the infrastructure we need—go up, which goes on consumers’ bills.

A stable regulatory environment in which people can be confident that a contract means what it says is one of the strong fundamentals of this country’s economy, and why people choose to do business here. If we start ripping up contracts, we lose that credibility, so I do not think that plan is serious or credible. If it was, it surely would have been introduced after 2022, when we had the same lessons that we have now. But it was not.

On the point about costs, it is important to reiterate that the renewables obligation scheme will come to an end in 2037. A number of projects will come off the scheme between 2027 and 2037, so the cost will come down. We made a conscious decision in the Budget to increase taxes on the wealthiest in order to pay to bring down the bills of some of most hard-working and less well-off people across the country, and we stand by it. That is why, in April, in the midst of a price crisis, the price of energy in this country will be capped and bills will go down by more than £100, because of the decisions this Government have chosen to take. By the sound of it, the Conservatives would not have taken those decisions, leaving consumers exposed.

This order is an important step. I recognise that it does not do everything that Members want but, as I said in my introductory speech, it is about being pragmatic. It takes a step that is still unwelcome, understandably, for those who have renewables obligations, but it is a pragmatic way to make sure that we get the best deal for consumers without shaking the foundation of the investment we need to build the clean energy system of the future. We think this is the right approach. We stand ready to take further action on the cost of living and energy bills, and we are doing that work, but this is a really important step. I commend the draft order to the Committee.

Question put and agreed to.