‘One-off tax’ on wind and solar companies set to be unveiled next week

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A de facto windfall tax will be imposed on wind and solar companies that reap exorbitant profits from high energy prices, under plans due to be unveiled next week.

Ministers have lost patience with renewable power generators, having sought to persuade them to accept voluntary 15-year fixed-price contracts well below current wholesale tariffs.

Now, legislation is expected as early as next week to cap revenues that have soared as prices rose following Russia’s invasion of Ukraine.

It is expected to be similar to the European Union’s proposals – effectively equivalent to a windfall tax on companies such as EDF Energy, RWE, Scottish Power and SSE.

But the companies are resisting the move, protesting that they have already sold most of the energy produced this year and that a tax risks disrupting financial markets again.

They are thought to be willing to accept a tax on profits, but reject a cap on revenues that could not be offset by future investments – a benefit controversially enjoyed by oil and gas companies.

The government, however, sees the benefit of capping prices, to further reduce inflation, as £500bn of government debt is tied to the rate of price increases.

A price of £50-60 per megawatt hour (MWh) was discussed before talks broke down, The Financial Times reported, well below current prices of around £490/MWh, although no final decision has been made.

An industry insider briefed on the talks criticized the plan, telling the newspaper, “You’re discouraging technologies that you can develop quickly to reduce [energy] bills.”

Power producers fear the “tax” could be more damaging to the sector than a one-off 25% levy imposed on oil and gas companies in May by then-Chancellor Rishi Sunak.

Controversially, it was accompanied by a new investment allowance which can be used to offset the tax bills of projects to increase fossil fuel production – despite the UK’s net zero commitment.

In June, industry body Energy UK warned that the next decade would be “critical to ensure sufficient investment to meet both our climate change and national energy security targets”.

“Generation is a long-term industry, with investment horizons that span decades and a windfall tax on generators could delay and increase the cost of these investments – just when we need to increase spending to achieve the government’s own goals,” deputy director Adam Berman said.

“We need to make it easier – not harder – to invest in cheap, clean domestic generation, and with demand for electricity set to double by 2035, a windfall tax would jeopardize our path to energy security, net zero and reliable electricity at low cost.

The Department for Business, Energy and Industrial Strategy declined to comment on the plans.

Last month the government announced that UK household energy bills would be capped at an average of £2,500 a year for the next two years – at a cost of £60billion for just six months.

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