Renewable energy generators have hit out at a new UK Government bill which they said would impose a “windfall tax” on the sector and “skew investment towards fossil fuels”.
The Energy Prices Bill proposes a cap on the revenues of renewables companies, which the sector said will act as a “de-facto windfall tax” above a certain level.
While the government has not outlined the level it will set the “Cost-Plus Revenue Limit” or the length of time it will be in place for, trade body RenewableUK said the administration is considering “pre-crisis expectations for wholesale prices”.
CEO Dan McGrail said: “We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK.”
The temporary revenue limit will apply in England and Wales – Westminster is liaising with the Scottish Government to confirm whether the measure will extend to Scotland.
The group said this would be a “100% windfall tax on renewables’ revenue above a certain level” which “risks skewing investment towards the fossil fuels that have caused this energy crisis.”
It was revealed over the weekend that the government is planning such a cap, sending shares of firms like SSE, Greencoat UK and Centrica down.
In May, former chancellor Rishi Sunak imposed a windfall tax on North Sea oil and gas operators by increasing their headline rate by 25% to 65% total, with certain investment incentives in place.
There has been talk of the government extending the windfall tax to renewable energy firms, as they too have enjoyed windfall profits as power prices surge.
A renewables revenue cap has already been proposed in the EU for wind, solar and nuclear power generation to 180 euros/MWh ($180/MWh) from December until the end of June.
The scheme, hoped to raise 117 billion for member states, is causing “investor turmoil” according to RenewableUK, and firms are warning that a similar UK policy must not “throw away” the country’s leading position for investment.
Mr MacGrail said: “It is essential that a cap is set at a level that doesn’t make the UK less attractive to investors than the EU, is technology neutral and has a clear sunset clause in place.”
Tom Glober, UK country chair at RWE said: “Given that the government should be prioritising low carbon investment over fossil fuels, we would urge the UK government to ensure that this effective windfall tax is no worse than that faced by the oil and gas sector (under the Oil and Gas Levy).”
RWE added that the limit should be set at a similar or higher level than the EU.
Am SSE spokesperson said: “Any revenue cap must be set at a level that doesn’t discourage essential investment in the UK’s renewable energy sector and therefore should be comparable to other countries.
“We will now work with the Government on the details of the policy to ensure it meets its objective of addressing extraordinary profits without throwing away the UK’s global leadership position on renewable energy investment.”
The firm also noted the importance of security of supply this winter and said flexible sources like hydro should be excluded.
The renewables revenue limit would apply to energy generators outside of the contracts for difference (CfD) which agrees a price for energy with the government.
That means older wind and solar energy projects will be hit, and there’s a risk to nuclear and biomass generation.
RenewableUK said £175bn of investment is needed in UK wind power so it is “essential” the cap is set at a level which “doesn’t make the UK less attractive to investors”.
Mr McGrail added: “Most wind generators sell their power a year or more in advance at prices that are a fraction of the record high market prices being set by gas. These hedging arrangements for wind power will help to keep electricity prices lower for consumers this winter, and the price cap must not undermine these arrangements.
“Industry has been proactive in proposing new fixed price contracts to cut costs and provide long-term, low-cost power for consumers. We welcome the inclusion of this proposal in the Bill, and it is vital that the scheme is developed rapidly so that industry can plan for new contracts and consumers can be confident that they are getting maximum benefit from cheap renewables.”