The CPI Switch!

Background

The UK Government, the Scottish Government and the Northern Ireland Executive launched two joint consultations on 31 October 2025 regarding a switch from RPI to CPI indexation for two key renewable schemes: 

1. the Renewables Obligation (RO) scheme (specifically the buy-out price) (consultation closes 28 November 2025 - see RO Consultation); and
    
2. the Feed-in Tariff (FiT) scheme (specifically the export tariff and generation tariff) (consultation closes 12 December 2025 - see FiT Consultation),

together the “CPI Consultation”. 

Although both schemes closed to new capacity with effect from 1 April 2017 (RO) and 1 April 2019 (FiT) (subject to grace periods), support will continue to be provided for certain generating stations until ultimately 2037 (RO) and 2043 (FiT) - as such, the schemes continue to form a core part of the UK's renewable energy landscape.  Indeed, the government estimate that electricity generated by RO accredited stations is equivalent to ~30% of the total UK electricity supply market (estimated annual RO cost of £8.5 billion in 2026/27) and 850,000 generators remain FiT accredited (estimated annual cost of £1.9 billion in 2026/27).

The idea of switching to CPI indexation for the RO buy out price first surfaced in July 2023, when the Conservative administration launched a call for evidence on a Renewables Obligation Fixed Price Certificate (FPC) scheme (see our previous article). That review stalled following the 2024 general election and Labour coming into power. The current CPI Consultation acknowledges this earlier initiative and confirms that a separate FPC consultation is coming soon, which is also likely to spark significant scrutiny from interested stakeholders.

In the meantime, the government has opted to publish this standalone CPI Consultation - likely driven by fiscal pressures and the impact of inflation on scheme costs.

CPI Switch - The Options

The CPI Consultation outlines two possible approaches for the introduction of CPI indexation, with implementation targeted before 1 April 2026 subject to legislative timelines:

Option 1: Immediate switch to CPI indexation - a straightforward switch from RPI to CPI with potential cost savings across both schemes estimated as £100 million in 2026/27 and £310 million in 2031/32. 

Option 2: Temporary freeze and gradual realignment with CPI - a more complex option which would freeze the RO buy-out price and FiT tariffs at the current 2025/26 level.  The government would then construct a “shadow” price schedule for the RO buy-out price and FiT tariffs from 2002, annually adjusted using CPI instead of RPI.  No further inflation-linked increases would be applied until the cumulative effect of CPI-based inflation on the shadow prices matches the current RPI adjusted buy-out price and FiT tariffs (estimated to occur in mid-2030s). At this point of alignment, annual CPI indexation would be triggered.   

By seeking to claw back previous years of perceived overinflation, the additional adverse impact of Option 2 on accredited generators could be significant.  Indeed, potential cost savings from Option 2 across both schemes are estimated as £360 million in 2026/27 (i.e. ~3.6x Option 1) and £1.05 billion in 2031/32 (i.e. ~3.4x Option 1). The government may therefore view this option as an adjustment too far and that the undoubtedly negative impact on investor confidence within the renewable sector would be too great - particularly when considered alongside the government's Clean Power 2030 targets and its stated aim to protect the UK consumer from volatile fossil fuel prices.  The consultation also acknowledges that implementing this option for the FiT scheme would require an “extensive and highly technical intervention” given that the scheme encompasses hundreds of individual tariffs linked to technology type, commissioning date and installation size. 

The Government's Rationale

The government's stated rationale for a switch to CPI indexation is four-fold:

1. Outdated methodology - RPI is widely considered to be outdated and tends to overestimate general inflation when compared to CPI (on average, RPI runs around 0.7% - 1.0% higher).  Indeed, CPI is now the government's preferred inflation measure and underpins the BoE's inflation targets with HM Treasury confirming that the RPI methodology will be phased out by February 2030 and replaced with the methodology for calculating CPIH (CPI including owner occupiers' housing costs). Thus, without pre-emptive action, changes to indexation under the RO and FiT schemes would otherwise take effect in 2030 in line with this switch to CPIH.
    
2. Overcompensation - RPI's inflation bias has overcompensated accredited generators under both the RO and FiT schemes.  A switch to CPI would continue to give generators a reasonable and predictable rate of return together with protection against inflation whilst not “overpaying”.  In adopting CPI and not CPIH (or retaining RPI), the impact of rising housing costs would also be excluded. 
    
3. Consumer savings - the cost of the RO and FiT schemes is ultimately recovered through levies on electricity bills.  A switch to CPI indexation would generate a minimum cost saving of £5 per year for the average household by 2030/31, with even greater savings under Option 2. 
    
4. Policy alignment - transitioning to CPI would better align with other government support mechanisms (e.g. CfDs, RHI, Capacity Market). 

The Legal Bit!

If adopted, the CPI switch will apply to all RO and FiT accredited generators and, as noted above, will be implemented ahead of 1 April 2026 subject to “legislative schedules”. To implement the change, the government anticipates laying a license condition modification (we anticipate to license condition 33 of the Electricity Supply SLCs) in respect of the FiT scheme whereas the RO scheme will require secondary legislation. 

Closing Remarks

Whilst not sacrosanct, the concept of “grandfathering” has underpinned the RO and FiT schemes since 2010 and has been a key principle that investors took account of in their original investment decisions. The concept of grandfathering created and maintained investor confidence within the UK renewables sector at a time when it was needed and addressed head-on investors' fears that support levels would be changed after they had deployed significant capital. 

A switch to CPI or a temporary freeze to tariff / buy out levels will therefore unnerve everyone involved.  Many investors have modeled returns based on RPI-linked revenues over the full support term.  Any switch (whether Option 1 or 2) will therefore undoubtedly result in slower growth of support income which may, in turn, impact projected equity returns and dividends and trigger a downward adjustment in NAV estimations of affected ProjectCos. In addition, projects financed with RPI-linked debt may face a mismatch between the generating asset projected revenues and debt liabilities. Coupled with uncertainty around the introduction of an FPC scheme, it is clear that the threat of sizable and costly changes to renewable support schemes being implemented is increasingly real and one which the industry may fight hard to resist whether by way of legal challenge or robust responses to the various consultation papers.

If you would like to know more about this consultation or possible responses to any proposed changes, please contact Alec Whiter, James Phillips, Nick Churchward, Emma Andrews or Ross Fairley.