Renewable electricity generators in the UK will be hit with a 45% windfall tax effective from the new year.
The “temporary” measure was announced today by Chancellor Jeremy Hunt in the Autumn Statement and will run though until 2028.
Treasury documents state the Electricity Generator Levy will be a new 45% tax on extraordinary revenues above a pre-crisis price baseline of £75/MWh, applying to certain renewable, nuclear and biomass electricity generators.
It will exclude projects under the Contracts for Difference (CfD) regime and will also include a small “de minimis” to exclude small generators.
The government argued the tax is “not expected to harm long term investment” because it applies only to a portion of excess profits and generators will still be able to write off their investments against corporation tax.
However industry groups have hit out at the “baffling” plans that risk undermining investor confidence in the UK market.
Hunt told the UK parliament: “The structure of our energy market creates windfall profits for low-carbon electricity generation so from 1 January we’ve decided to introduce a new temporary 45% levy on electricity generators.”
He said the measure, coupled with the Energy Profits Levy imposed earlier this year on oil and gas companies and increased today from 25% to 35%, is expected to raise £14bn for the Treasury next year.
The move forms part of a wider package of financial interventions announced today in which the Treasury boss set out his strategy to address the UK’s public finance woes through a series of spending cuts and tax rises.
The decision to impose a windfall tax is a departure from former Prime Minister Liz Truss’s plans to cap the revenues of renewable producers from next year, known as the Cost-Plus Revenue Limit.
According to the government, the new levy is a “more proportionate” approach that is administrable through the corporate tax system and will leave generators with “a greater proportion of their returns to invest in growing the UK’s renewable energy capacity”.
Despite the raid on renewables generators earnings, Hunt said energy remains a “growth priority” for the Conservative government.
“Over the long term there’s only one way to stop ourselves being at the mercy of international gas prices – energy independence combined with energy efficiency,” he added.
“Britain is a global leader in renewable energy, but we need to go even further with a major acceleration of homegrown technologies like offshore wind, CCS and above all nuclear.”
He confirmed the government will go ahead with plans for the Sizewell C nuclear plant in Suffolk, while announcing a £6bn energy efficiency drive for homes and businesses starting in 2025.
The Department for Business, Energy and Industrial Strategy is expected to provide further details of this scheme, as well as how the government will strengthen energy independence, in due course.