Rishi Sunak’s Government could be risking investment in renewables, after the Government announced a windfall tax on producers.
During the Autumn Statement, Chancellor Jeremy Hunt announced that producers of renewable energy would be hit with a windfall tax of 45%. It was argued that the tax was necessary due to the soaring profits of energy firms at a time when consumers were hit with record high energy bills.
However, some experts have criticised the Government for unfairly targeting the renewables industry, while oil and gas giants get away with paying less. In fact, the windfall tax imposed on the oil and gas sector was set at just 35%, 10% less than renewable energy suppliers.
That’s not all that has riled some experts, however, with the oil and gas sector also offered the opportunity to avoid all but a tiny fraction of the windfall tax if they invested in more oil exploration and production. Those investing in renewables were not provided with the same deduction.
Additionally, while the Government has labelled the windfall tax as ‘temporary’, it has been set for the next five years, potentially stifling investment in renewables at a time when sources such as solar and wind power could actually be the solution to reducing energy prices.
The Electrical Contractors Association has echoed the criticism of some experts, warning that clean energy continues to be taxed more heavily than fossil fuels.
Andrew Eldred, ECA Director of Workforce and Public Affairs, noted, “For the last few years, the UK has consistently generated around 40% of its electricity from renewable sources, and the government’s levy on electricity generators could stifle long-term investment in homegrown clean energy and energy security.
“Despite the economic turmoil of the past year, the UK remains a strong global leader in attracting renewable energy investment; we need to capitalise on this tailwind, rather than block it.”
Is there another side to this story?
Of course, the Government has made the decision to tax energy firms due to record profits – with renewable energy generators having hugely benefited. This is because electricity prices have long been pinned to the marginal cost of gas. That means that wind and solar farms, which have low overheads compared to natural gas and nuclear power stations, were getting more profit from the electricity they generated.
Despite expert warnings, some have argued that the UK continues to be a favourable place for investment in renewable energy. Noting that the Government is providing generous grants for the development of renewables, while also excluding certain providers from the windfall tax, such as projects under the Contract for Difference mechanism, or smaller projects underneath the £10 million cap.
One investor in solar energy, Atrato Onsite Energy plc, has noted that it will not be impacted by the levy at all. That’s due to the fact that it will be applied to wholesale market revenues above £75/MWh.
However, that may not stop the UK from being less attractive when it comes to investing in renewable energy. In fact, two days before Jeremy Hunt announced the new windfall tax, consulting firm EY had already released its Renewable Energy Country Attractiveness Index, which saw the UK fall one position from the high it enjoyed in May.
The UK is now considered the fourth most attractive place to invest in renewables, below the US, China and Germany, with the latest windfall tax likely to have an impact on the report when it comes out again in six month’s time.