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Investing.com -- The U.K. government’s new budget will reduce domestic energy bills by £154 starting April 2026, providing relief for utility companies and consumers.
The government plans to end the Energy Company Obligation and move 75% of Renewable Obligation costs to general taxation for three years, resulting in household savings of approximately £150.
This measure was anticipated and represents about half of the £300 savings mentioned during election campaigns nearly two years ago.
Importantly for utilities, the budget contained no adverse changes to the generation market, such as modifications to the £18/ton CO2 floor or the 45% windfall tax on power prices for inframarginal generation above £80/MWh.
UBS analysts note that the government is committed to further reducing electricity costs for all households and improving electricity pricing relative to gas. The exact implementation of the £150 reduction remains to be determined, with potential targeting toward standing charges or electricity unit costs.
The government has also extended the consultation deadline regarding changes to inflation indexation for the Renewable Obligation scheme from November 28 to December 2. The proposed options include moving from RPI to CPI indexation or freezing the renewable obligation, with potential impacts on renewable portfolios.
Among U.K. utilities, Centrica PLC (LON:CNA) is seen as a small beneficiary of these changes, with UBS maintaining a Buy rating and a price target of 205p. The firm has large provisions against aged debt in domestic supply, and lower bills could prevent further deterioration.
UBS also maintains its ratings for SSE PLC (LON:SSE) at Neutral with a 2,350p price target, Ørsted at Buy with a DKK 160 target, and Drax Group (LON:DRX) at Sell with a 685p target.
The budget changes are viewed as positive for the investment climate supporting clean power initiatives.