De facto UK windfall tax on inexperienced vitality is ‘catastrophic’, sector warns

The UK authorities’s de facto windfall tax on low carbon electrical energy corporations could have “catastrophic penalties” for funding in inexperienced applied sciences equivalent to wind and photo voltaic, vitality corporations have warned.

Power UK, a commerce physique that represents corporations together with Centrica, EDF Power, ScottishPower and SSE, this weekend joined criticism of the federal government’s income cap on low carbon electrical energy mills, which was confirmed by Liz Truss’s authorities earlier than she stepped down as prime minister.

The coverage, which was launched to boost funds for the federal government’s vitality payments help scheme for households and will stay in place till the tip of 2027, is included in a controversial vitality costs invoice that’s nonetheless progressing via parliament. Nevertheless, ministers are but to substantiate the extent of the cap.

It applies to corporations that personal low carbon electrical energy era property equivalent to wind and photo voltaic farms, plus nuclear and biomass energy vegetation. Fuel-fired energy vegetation are excluded regardless of additionally benefiting from the surge in wholesale energy costs following Russia’s full blown invasion of Ukraine.

Power corporations have branded the coverage an efficient windfall tax and are involved it’s much more punitive than a separate levy on oil and gasoline producers, which was launched by former chancellor Rishi Sunak in Could.

Power UK has despatched a briefing to all MPs forward of chancellor Jeremy Hunt’s fiscal assertion — anticipated on October 31 — warning that the cap, as it’s at present designed, would “cement a tax regime closely tipped in favour of oil and gasoline, and ship a disastrous message [to global investors] in regards to the UK’s local weather dedication”.

The group argues that whereas the levy on oil and gasoline — which raised fossil gasoline producers’ headline tax price from 40 to 65 per cent — is charged solely on earnings, the cap will restrict its members’ revenues, which is probably much more damaging.

The group additionally factors out that Sunak’s so-called vitality earnings levy on fossil gasoline producers was accompanied by a beneficiant funding allowance that corporations can use to scale back their tax invoice in the event that they embark on new drilling operations.

The oil and gasoline levy features a sundown clause that may take away it on the finish of 2025, whereas the vitality costs invoice would hand ministers the facility to maintain the income cap in place two years longer, till the tip of 2027, Power UK warns.

Except comparable allowances are constructed into the income cap, the federal government will “penalise funding in clear, low cost, low-carbon era in favour of polluting oil and gasoline extraction”, the briefing says.

A “poorly designed” income cap can be “an unprecedented coverage that would have catastrophic penalties for the funding wanted to safeguard each our local weather targets and vitality safety each this winter and past”, the briefing provides.

Power corporations are hoping a brand new Conservative prime minister will pause a few of Truss’s initiatives and work with the sector to design higher options to the vitality worth disaster.

The UK enterprise division didn’t instantly reply to a request for remark.