Industry players have criticised the UK government’s decision to impose a 45% windfall tax on renewables generators effective from the new year.
Industry body RenewableUK warned that the new levy, which was announced today in the Autumn budget by Chancellor of the Exchequer Jeremy Hunt, could “severely deter investment” in new renewable energy projects in the UK.
RUK CEO Dan McGrail (pictured) said that the windfall tax “risks deterring investment” for renewables generators “at a time when the Chancellor should be incentivising clean energy”.
He added that it will also mean that renewable generators “will get no tax relief and will be hit by a higher windfall rate” than that imposed on oil and gas companies.
McGrail said: “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.
“We need to attract more than £175bn in new wind farms and our supply chain over the course of this decade, so we need to make the UK one of the most attractive destinations for private investment in renewables.
“Ministers now need to work with the industry to ensure that the implementation of these plans ensures a level playing-field, rather than imposing unfair burdens on renewables.”
“The current support mechanism for renewables, Contracts for Difference, is delivering new power cheaper than any other system, so it’s the right model to focus on as we move forward”.
Frank Gordon, Director of Policy at the Association for Renewable Energy and Clean Technology (REA), said the REA would “question the wisdom” of subjecting the cheaper, greener renewable power sector to a more punishing tax system than its oil and gas counterparts.
He said: “We note the exemption for smaller sites, but I would strongly urge the Government to fix this disparity as there is a strong need for tax relief for low carbon investments to help stabilise energy prices and offer long-term energy security.
“This is crucial for getting investments in renewables moving again following the pause that resulted from the last few months of political and policy uncertainty.”
Energy UK director of advocacy Dhara Vyas said the Government’s approach was “odd” and that the imposition of the windfall tax will “effectively penalize much needed low-carbon generation over polluting fossil fuel extraction”.
“A windfall tax on generators lasting 6 years stands in stark contrast to the 6 months duration of the European equivalent, making the UK a much less attractive destination for investment,” he added.
Elsewhere, Scottish Renewables chief executive Claire Mack said Hunt’s announcement “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”.
She explained that many renewable energy generators on older contracts have sold their power in advance and are therefore not benefitting from “excess profits from wholesale price rises caused by the cost of gas”.
“We would therefore urge the government to ensure that the 45% windfall tax announced today does not unfairly impact these generators which have not been earning increased profits,” Mack added.
RenewableNI director Steven Agnew said it was “baffling” that the windfall tax on renewables generators was higher than the 35% levy, increased today from 25%, imposed on oil and gas companies.
He added: “We are yet to discover whether this will apply in Northern Ireland, but it seems likely that it will.
“We operate in an all-island electricity market (SEM) and this will put NI generators at a considerable disadvantage to those in ROI.
“We are already developing renewables at a slower rate than is needed to meet our 80% by 2030 renewable electricity target due to a lack of policy support. This measure will further inhibit investment in renewables.”
Meanwhile, ScottishPower Renewables chief executive Keith Anderson said: “In times of national crisis, everyone should be playing their part. I’m deeply disappointed that renewables have been singled out – it seems it’s a recession made by gas, but a recovery to be paid for by renewables.
“Imposing this scheme to March 2028 creates a five-year long corridor of uncertainty for investors – hitting the clean energy projects we need more of to wean us off gas dependency and decarbonise.
“I do not understand why renewables are being taxed at similar levels to oil and gas and those businesses are being given added incentives to invest in even more fossil fuels.”
SSE Renewables chief executive Alistair Phillips-Davies said, however, that “SSE has always believed in paying our fair share of tax” and thinks a “well-designed levy on extraordinary profits, where they are actually realised, is reasonable”.
“We also believe in treating the cause, not just the symptoms of the energy crisis and we look forward to hearing more from government about how it will support the massive investment in homegrown clean energy that this country needs to end our dependence on expensive imported gas and cut bills in the future.
Phillips-Davies said the company will now “work constructively with the government” to see how the new windfall tax will “work in detail”.
Friends of the Earth’s head of policy Mike Childs said: “While an increase in the windfall tax is welcome, it is undermined by the Chancellor’s failure to close the loophole that allows fossil fuel firms to avoid paying most of it if they invest in more gas and oil.
“We won’t build a clean, green and prosperous future while we continue to subsidise our reliance on fossil fuels.
“The Chancellor clearly wasn’t listening when the Prime Minister promised to make the UK a clean energy superpower at the climate summit last week.
“If he had, he would surely have signalled an end to the planning barriers that hamper the development of onshore wind in England.
“It’s cheaper than gas, popular and there’s plenty of it. Instead, his tax on renewable energy companies risks reducing investment into much needed clean energy.”