The Department for Energy Security and Net Zero (DESNZ) has confirmed it will proceed with reforms to both the Renewables Obligation (RO) and Feed-In Tariff (FiT) schemes, switching annual inflation indexation from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI) from April 2026. [1] [2] The change adjusts subsidy payments for inflation in line with CPI, with the aim of reducing policy costs for consumers.
What was consulted on – and why?
The Government launched two concurrent consultations in October 2025 on reforming the inflation indexation applied to RO and FiT support payments.
Renewables Obligation (RO) – The RO, closed to new generation since April 2017 but still supporting a substantial portfolio of legacy assets, currently uprates its buy-out price in line with RPI. Generators will continue to receive payments until they come off the scheme between 2027 and 2037. The RO remains a central part of the UK’s energy system, supporting over 30% of electricity generation, operating across England and Wales, Scotland, and Northern Ireland.
Feed-In Tariff (FiT) – The FiT scheme, which supports small-scale renewable generation, such as buildings with solar panels, was closed to new applicants in April 2019. Approximately 850,000 generators continue to receive payments under their agreed terms. The scheme provides fixed payments for electricity generated and exported to the grid, primarily from solar PV, onshore wind, hydropower, anaerobic digestion, and micro-CHP. Reforming FiT indexation to CPI is intended to reduce overcompensation, provide a fair cost to consumers, and ensure stable support for existing generators.
Two principal options were considered:
- Option 1 – An immediate switch from RPI to CPI indexation from April 2026.
- Option 2 – A temporary freeze in the buy-out price at 2025–26 levels, followed by a phased transition to CPI.
Outcome and Response
While industry respondents, including generators and investors, warned that retrospective changes to legacy support arrangements risk undermining confidence, DESNZ concluded that Option 1 represents a ‘necessary and proportionate’ intervention that balances consumer protection with investor confidence for both the RO and FiT schemes.
Citing the rationale in its decision, DESNZ outlined the below reasons:
- Consumer savings – At its peak in 2030, the move to CPI indexation is expected to deliver savings of around £270 million per year in policy costs. This sits alongside the November 2025 Budget decision to shift 75% of the domestic share of RO costs to the Exchequer from April 2026.
- Regulatory stability – A temporary freeze under Option 2 was deemed potentially more disruptive than a clear and decisive transition to CPI.
- Policy alignment – CPI is now the standard inflation metric across government and is already used in other energy support mechanisms, including the Contracts for Difference scheme and the Capacity Market. Aligning the RO with CPI is seen as improving constituency.
Overall, while acknowledging that some projects, particularly those with RPI-linked O&M costs or debt structures, may experience tighter financial headroom, the Government concluded that aggregate impacts are likely to be modest and manageable.
Alternative proposals, including deferring reform until 2030, phasing out RPI more gradually, or adopting CPIH, were rejected on the basis that they would not deliver equivalent consumer benefits or lacked supporting evidence.
Next Steps
To implement the change for the 2026–27 financial year, statutory instruments must be laid and approved before 1 April 2026. Following this, Ofgem will publish the finalised RO buy-out price and mutualisation thresholds reflecting CPI indexation.
Separately, later this year, DESNZ will consult on transitioning the RO to a Fixed Price Certificate system. This will examine longer-term operability, headroom arrangements and investor confidence.
Conclusion
The decision provides clarity but confirms a degree of retrospective policy risk in the treatment of legacy schemes. While the immediate financial impact may be limited at a sector-wide level, the precedent of altering indexation methodology will be closely scrutinised by infrastructure investors.
The reform must be understood within a broader package aimed at reducing electricity system costs and supporting industrial competitiveness, in line with the decision to shift RO costs from energy bills into general taxation. However, as the UK continues to rely on private capital to deliver its clean energy objectives, the longer-term implications for perceived regulatory stability will remain a live issue across both legacy and future support mechanisms.
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Notes
[1] Department for Energy Security and Net Zero, ‘Consultation Outcome: Changes to inflation indexation in the Renewables Obligation scheme: consultation document’, 28 January 2026, Link
[2] Department for Energy Security and Net Zero, ‘Consultation Outcome: Changes to inflation indexation in the Feed-In Tariffs (FiT) scheme: consultation document’, 28 January 2026, Link
