Home Energy assets UK’s de facto windfall tax on green energy is ‘catastrophic’, industry warns

UK’s de facto windfall tax on green energy is ‘catastrophic’, industry warns

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The de facto windfall tax imposed by the UK government on low-carbon power companies will have ‘catastrophic consequences’ for investment in green technologies such as wind and solar, energy companies have warned .

Energy UK, a trade body which represents companies such as Centrica, EDF Energy, ScottishPower and SSE, joined over the weekend in criticism of the government’s revenue cap on low-carbon electricity generators, who has been confirmed by the government of Liz Truss before she left her post as Prime Minister.

The policy, which was put in place to raise funds for the the government’s energy bill assistance program for households and could remain in place until the end of 2027, is included in a controversial Energy Prices Bill which is still pending in Parliament. However, ministers have yet to confirm the level of the cap.

It applies to companies that own low-carbon power generation assets such as wind and solar farms, as well as nuclear and biomass power plants. Gas-fired power plants are excluded although they also benefit from the spike in wholesale electricity prices following the Russian crisis invasion of ukraine.

Energy companies have called the policy a windfall tax and fear it could be even more punitive than a separate tax on oil and gas producers, which was introduced by the former Chancellor Rishi Sunak in May.

Energy UK sent a briefing to all MPs ahead of Chancellor Jeremy Hunt’s budget statement – due October 31 – warning that the cap, as currently designed, would “cement a steeply tilted tax regime in favor of oil and gas, and would send a disastrous message [to global investors] on the UK’s climate commitment.

The group argues that if the oil and gas tax – which has raised the headline tax rate for fossil fuel producers from 40% to 65% – is only levied on profits, the cap will limit revenue of its members, which is potentially even more damaging.

The group also points out that Sunak’s so-called energy profit tax imposed on fossil fuel producers came with a generous investment allowance that companies can use to reduce their tax bill if they embark on new ventures. new drilling operations.

The Oil and Gas Tax includes a sunset clause that would scrap it at the end of 2025, while the Energy Prices Bill would give ministers the power to keep the revenue cap in place two years more, until the end of 2027, warns Energy UK.

Unless similar allowances are built into the revenue cap, the government will “penalize investment in clean, cheap, low-carbon generation in favor of polluting oil and gas extraction”, the government says. briefing.

A “poorly designed” revenue cap would be “an unprecedented policy that could have catastrophic consequences on the investments needed to safeguard both our climate goals and energy security this winter and beyond,” the briefing adds.

Energy companies are hoping a new Conservative prime minister will pause some of Truss’ initiatives and work with the industry to devise better solutions to the energy price crisis.

Britain’s trade department did not immediately respond to a request for comment.