The UK renewable energy industry cried foul over a new windfall tax on green power that offers no incentives for investments of the type available to oil & gas players and gives fossil generation a free pass.
The cash-strapped British government's finance minister, chancellor of the exchequer Jeremy Hunt, today (Thursday) said it will from January 2023 set a 45% levy on “extraordinary returns” on electricity sold above £75/MWh ($88.30/MWh), around a quarter of recent wholesale prices.
The windfall raid, which the UK expects to raise £4bn, is designed to stop renewable and nuclear generators benefitting from inflated power prices set by the gas market but without the need to actually pay for the fuel.
Industry body RenewableUK said the levy – due to run until March 2028 – risks deterring investment in the UK green power sector just when it is badly needed.
The group is particularly irked that the oil & gas sector – which faces a lower rate of 35% – can offset the impact by making investments in new fossil activities, an option not available to power generators, and that gas and coal-fired electricity is exempt.
RenewableUK CEO Dan McGrail said: “This windfall tax on low carbon power risks deterring investment, at a time when the Chancellor should be incentivising clean energy. Unlike in oil and gas, under this levy companies which are making significant investments in renewables will get no tax relief and will be hit by a higher windfall rate.
“Any new tax should have focussed on large, unexpected windfalls right across the energy sector, instead profits at fossil fuel plants are inexplicably exempted from the levy. Many renewable generators are on long-term, fixed price contracts and most other sold their power for this winter over a year ago, so they haven't been making excess profits.”
Ian McCarlie, an energy specialist at law firm Pinsent Masons, said: “While the government is at pains to say that the levy ‘is not expected to harm long term investment’, investors in renewable energy projects will need to carefully review their investments in light of the announcement.
“The tax, which is unprecedented in the UK renewables sector, could adversely impact plans for new renewables projects and stifle innovation.”
The levy will not apply to projects operating under the UK's contract-for-difference mechanism, which is already structured to avoid excessive profits.
Scottish Renewables CEO Claire Mack said: “The UK needs £1.4trn to fund its transition to net-zero by 2050. To raise that money, international investors look to the UK government to provide a stable policy environment which incentivises investment in clean power.
“Today’s announcement by the Chancellor damages this country’s reputation as a leader in renewable energy, chiefly by continuing to offer investment allowances to oil and gas extraction while failing to do the same for this industry.”