UK Government confirms switch to CPI indexation for renewable subsidy schemes from April 2026 but rules out a freeze and wider realignment

Two options were consulted on by the Government:

• Option 1: immediate switch from RPI to CPI from April 2026; and
  
  
• Option 2: freeze the buy‑out price at £67.06/ROC from April 2026 and realign over time to a CPI “shadow” path – this would have a much more severe impact on returns over the remaining term of eligible assets (as depicted in our previous briefing).

The consultation (247 responses) drew strong investor and generator concerns about the retrospective nature of the proposed changes, and the resultant revenue/cost mismatches and negative impact on investor confidence. There was a clear consensus against any change to indexation – but in the event one was made, an unsurprisingly clear preference to avoid Option 2.

The Government chose Option 1 for both the RO and the FiT schemes — meaning a near immediate switch to CPI, taking effect from (it intends) April 2026 across England & Wales, Scotland and Northern Ireland (each subject to its own legislative process). The Government cited lower disruption, clearer investor signalling and alignment with other CPI‑indexed regimes such as the Contracts for Difference and the electricity Capacity Market as reasons to make the change. The response estimates CPI indexation could save policy costs borne by consumers by c.£270m at peak in 2030, alongside the separate decision (Budget 2025) to move 75% of the domestic share of RO funding to the Exchequer from 1 April 2026, with suppliers reimbursed and savings passed through to bills.

Whilst the Government recognised the strong consensus against any change in the consultation responses, it sought to present its decision as taking account of that in selecting the 'least disruptive' option, in Option 2. That is not an entirely persuasive or convincing stance – as it does not address the concerns voiced in many of the responses which relate to both options (including in relation to the retrospective nature of the change) - and also leaves the impression that the more draconian Option 2 was somewhat of a stalking horse, designed to allow a 'balanced' decision to be presented. The Government also noted that limited evidence of the adverse economic impacts of the change was provided in the responses; but it could equally be said that limited opportunity was provided for this in the rapid consultation process, and that this type of evidential assessment is best done in more direct engagement and expert studies rather than a brief public consultation.

• Legislation and timing: The UK Government and devolved governments must enact affirmative statutory instruments before the 1 April 2026 to enable the change to take effect  for the 2026 to 2027 financial year. Once the statutory instruments have been made, Ofgem will publish the finalised RO buyout price and mutualisation levels. This does not leave the Government with much time to pass the implementing legislation and so deliverability will be somewhat of a risk. However, given the accelerated timeline to date (with the consultation process and response being rather more rapid than we typically see) and that the outcome of the Consultation has been published well in advance of the 1 April, we anticipate that the Government has concluded (and made sufficient arrangements to ensure) that sufficient parliamentary time is available to deliver the change (subject to any legal challenge, as discussed below). It also helps that the legislative drafting changes will, on this proposal, be relatively simple.
  
  
• Wider reform: A further consultation on moving the RO to a Fixed Price Certificate model will follow later this year, including considering headroom design (the Government does not intend to remove financial headroom entirely). This follows a previous proposal, under the previous Conservative government, in 2023 which was not followed through (see here). With investor confidence already dented by the Government's proposals on indexation, these (potentially more wide ranging) reforms
  
  
• Legal challenge: Although Option 2 has been set aside, the risk of a legal challenge persists. Many respondents characterised any change to existing RO indexation as retrospective and a departure from the principles of legal certainty on which projects and financings were structured, with some respondents - echoing points we made in our previous article – explicitly suggesting that the proposals represented a breach of 'legitimate expectations' on prior commitments by government. This is very much the language of judicial review. Whether any parties, or group of parties, have the appetite (noting the legal expense and disruption involved in challenging government, at a time of general uncertainty and potential partnering with government in investments) to launch a challenge remains to be seen. Typically, a judicial review challenge should be brought within 6 weeks of a decision to avoid being timed out, and so we will not need to wait long.

Investors and lenders may be required to re-run financial forecasts and asset valuations on a Consumer Prices Index (CPI) basis from April 2026 (once the required affirmative Statutory Instruments (SIs) have been published and based on the Office of Gas and Electricity Markets' (Ofgem) publication of the final buy out price and mutualisation levels).

Additionally, affected parties may wish to revisit their revenue / cost indexation to identify any potential mismatches, including any Operations and Maintenance ("O&M") contracts, land leases and network/transmission charges that remain RPI linked—and to engage counterparties on potential contract adjustments or risk sharing. The moving of subsidy revenues to CPI while key costs stay RPI linked could create structural mismatches.

• Lenders in particular may consider reviewing key financing terms to ensure headroom and covenant robustness; risks of tighter covenants, refinancing difficulties and potential lender renegotiations—especially for more highly leveraged or single asset structures— will remain, particularly where cost bases remain RPI linked while subsidy revenues move to CPI.
  
  
• Meanwhile, investors will be closely monitoring market sentiment until legislative certainty arrives. Given the government's Clean Power by 2030 plan, the need for clear, timely signalling by the UK Government to minimise higher risk premia and preserve investor appetite during the transition has never been higher – which does make the rapid change brought about by this reform rather unfortunate timing, if nothing else.

The response to the consultation may not be the final word on this matter. A legal challenge and/or further delays remains a real possibility. Stakeholders should monitor closely the progress of the reform through the parliamentary process and whether any challenge is brought and, in parallel, prepare to evidence potential impacts on financing covenants and cash flows should they need to engage. Separately, investors and lenders should take time to reflect on their own financing and contractual arrangements to ensure that they remain robust and effective in a post-RPI system.