UK government weighs change in inflation indexation for renewables subsidy schemes
UK government weighs change in inflation indexation for renewables subsidy schemes
As has been widely reported, the UK government has launched consultations on proposed changes to the way indexation is calculated for two renewable energy subsidy schemes — the Renewables Obligation (‘RO’) and Feed-in Tariff (‘FiT’). Currently indexed to the Retail Price Index (‘RPI’), the government proposals look to switch indexation to the generally lower Consumer Price Index (‘CPI’).
In the weeks since this announcement, asset owners, advisers and industry commentators have sought to quantify the impact of these proposals on their clients and businesses. In this post we present the expected impact of these proposed changes on the net asset value (‘NAV’) of a selection of listed renewables investment trust companies (‘YieldCos’), sourced from their recent RNS announcements.
The government consultations contained two options for respondents to consider, as follows:
- Option 1: Immediate Switch to CPI Indexation - Both the RO and FiT will increase in line with published CPI from April 2026 onwards.
- Option 2: Temporary Freeze and Realignment with CPI - CPI indexation will be applied retrospectively from each scheme’s inception. Although the government does not intend to reduce buy-out prices through this mechanism, the recalculation of the historical indexation means prices will be held at their existing level until the CPI-indexed trajectory exceeds the current price level. In practice, this approach would keep prices frozen for the foreseeable future.
Impact on renewables YieldCos
Both options put forward by the government are expected to have a negative impact on NAV as lower indexation results in lower expected future cash flows. NAV impacts published by the YieldCos are shown in the table below:
| YieldCo NAV Analysis | Option 1 | Option 2 |
| TRIG | -0.5% | -2.2% |
| Foresight Environmental Infrastructure | -0.5% | -6.3% |
| Octopus Renewables Infrastructure Trust | -1.1% | -4.0% |
| Greencoat UK Wind Plc | -1.7% | -7.5% |
| NextEnergy Solar Fund | -2.0% | -9.0% |
| Bluefield Solar Income Fund | -2.0% | -10.0% |
| Foresight Solar Income Fund | -1.6% | -10.2% |
| Low | -0.5% | -2.2% |
| High | -2.0% | -10.2% |
Source: RNS announcements, BDO analysis
Solar funds are expected to be the most significantly impacted amongst the YieldCos. The UK solar market underwent a rapid, subsidy-driven expansion between 2011 and 2017 and during this period, FiT and RO support, combined with sharply falling solar panel costs, drove the installation of much of today’s operational capacity.
The government’s rationale
In the context of the latest consultation, the government has argued that both RPI and CPIH include housing-related costs that are not relevant to this sector. As such, CPI is deemed the most appropriate measure of inflation. Adopting CPI would also align both legacy mechanisms with newer schemes such as the Contracts for Difference (‘CfDs’) and Renewable Heat Incentive (‘RHI’) tariffs.
From a valuation perspective, we have observed that most underlying operating costs (excluding certain items, such as rent) are generally indexed to CPI rather than RPI. Since RPI is expected to exceed CPI until at least 2030, current cashflow forecasts assume revenue growth linked to RPI will outpace the costs inflation. As a result of the proposed reform, this will no longer hold, thereby reducing forecasted dividends and, consequently, NAV.
Policy considerations
The RO consultation closed on 2 December 2025, while the FiT consultation remains open until 12 December 2025. Subject to the outcome and ensuing legislative process, the effective date of any changes is expected to be 1 April 2026.
Given the scale of private capital required to meet the UK’s 2030 Clean Energy targets, any policy changes will need to be designed carefully to maintain investor confidence. Recent market movements highlight this sensitivity: the share prices of listed YieldCos fell by up to 8.9% following the announcement, although modest recoveries were observed in the days that followed.
Deterioration in investor sentiment could increase required returns for new projects. Consequently, to stimulate sufficient investment, the government may need to offset the impact of indexation reform by offering stronger incentives — for example, higher strike prices in future CfD allocation rounds.
Where BDO can help?
BDO has significant market insights through the breadth of its advisory and audit relationships combined with the expertise of our international network spanning over 160 countries. Our UK team includes industry and financial specialists such as chartered accountants, tax advisers, and chartered engineers, all ready to support companies within the renewables and wider energy transition sector at any stage of their project lifecycle. Whether you're involved in initial development, financing, investment, project procurement, restructuring, or divestment, we can assist.
Our clients are active both in the UK and internationally, operating across wind, solar, energy storage, hydrogen, and other technologies, as well as support industries. Our broad expertise means we can address the specific needs of companies in each technology sector, ensuring they receive tailored support and insights. This broad exposure allows us to navigate different markets, regulatory frameworks, and geopolitical landscapes, providing insights into best practices, regulatory compliance, market trends, and investment opportunities.
BDO’s offering comprises:
- Valuation Services
- Business restructuring
- Transaction services
- Audit and assurance
- Financial modelling
- Due diligence
- Tax including R&D, corporate tax compliance, transfer pricing and VAT
- Strategic advisory
- Business services and outsourcing
To find out more on this topic and for a conversation on how BDO can support you with your valuation requirements, please get in touch with Simon Jones or Adam Cuthbertson.