The changing indexation for FiT and RO: What it means for generators and investor confidence

The UK’s reputation as a stable investment environment is under scrutiny. The government’s proposal to change the inflation indexation for the Renewables Obligation (RO) and Feed-in Tariffs (FiT) schemes, from the Retail Price Index (RPI) to the Consumer Price Index (CPI), could reshape revenue expectations for thousands of generators and raise questions about policy certainty.

What’s changing and why?

From April 2026, the government is proposing to switch the inflation indexation calculation for the RO buy-out price from RPI to CPI and switch the FiT annual tariff adjustment calculation from RPI to CPI.

The indexation change would affect all UK generators currently supported under the RO and FiT schemes.

When the schemes were introduced, RPI was the most widely used measure for general inflation. But today, it is generally accepted that RPI tends to overestimate annual growth compared to CPI, and is therefore overcompensating generators. As such, CPI is the government’s preferred inflation measure and is already used in the Contracts for Difference (CfD) scheme.

The aim of this reform is to reduce the annual increase in subsidies for generators, thereby reducing the costs for UK consumers, with estimated savings of £320 million to £1 billion for RO and £50 million for FiT by 2031/32.

About the RO and FiT schemes

Renewable Obligation (RO) Scheme

Introduced in 2002, the RO scheme was designed to incentivise renewable generation by issuing certificates for each MWh of electricity produced from renewable sources. Suppliers are required to purchase sufficient Renewable Obligation Certificates (ROCs) or pay a buy-out price to Ofgem, which is set annually by the government. Although the scheme closed to new entrants in 2017, it still supports over 30% of the UK’s current electricity generation.

Feed-in Tariff (FiT) scheme

The FiT scheme ran from April 2010 to March 2019, supporting smaller-scale renewables up to 5MW. Today, it continues to support around 850,000 individual electricity generators across the UK.

Both schemes were built on the principle of predictable, inflation-adjusted support to maintain investor confidence and ensure long-term project viability. Changing this retrospectively introduces uncertainty.

Proposed options 

The government’s consultation outlines two potential approaches:

Option 1: An immediate switch from RPI to CPI indexation ahead of the March 2026 annual adjustment.

Option 2: Freeze RO and FiT rates at 2025/26 levels set in April 2026, then gradually realign using a CPI-based “shadow price” until it matches the RPI-adjusted equivalent. Indexation would then resume under CPI.

What does this mean for generators

Under Option 1, revenues would adjust immediately with a switch from RPI to CPI in April 2026, meaning rates would still rise annually but at a slower pace than under RPI. Option 2, however, would freeze current values for several years until CPI-based calculations catch up with the RPI-inflated level, after which CPI indexation would resume. This approach introduces a more significant shift that could affect project profitability and financing over the coming years.

For generators relying on predictable revenues to service debt or attract refinancing, these changes could be significant.

Investor confidence at risk

The UK has long been viewed as a stable, low-risk market for renewable investment. Retrospective changes to long-standing schemes could damage that confidence. If this proposal is implemented, it’s possible that investors may start pricing in policy risk for future projects, increasing the cost of capital and slowing progress toward net zero.

With Clean Power 2030 targets in mind, we are at a pivotal moment in delivering the capacity needed for a future net zero energy system. As the energy landscape evolves rapidly, policy clarity and investment confidence have never been more important.

Policy certainty is not just a technical detail, it’s a cornerstone of investor trust. If that trust erodes, the ripple effects could extend far beyond RO and FiT assets.

Next steps

The RO consultation was extended from 28 November to 2 December 2025 to allow more time for responses, while the FiT consultation closed at 5pm on 12 December. General sentiment from the industry is mixed, reflecting concerns over revenue certainty and long-term policy stability.

At SmartestEnergy, we’re committed to helping our customers navigate an evolving policy landscape with clarity and confidence. Policy stability is critical for delivering affordable, low-carbon power and maintaining the UK’s leadership in renewable investment.