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UK Government faces legal action, reduction in nuclear thanks to windfall tax

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The UK Government’s Electricity Generator Levy (EGL), commonly known as the windfall tax, was officially implemented on January 1, but it appears to be causing a bit of a headache for Rishi Sunak’s premiership.

As the cost of electricity has increased in line with the skyrocketing price of gas, those in the renewable energy market have recorded record profits. That’s because the cost of generating electricity hasn’t increased for renewable generation, while the price they sell their electricity for has increased substantially. 

Those record profits have come at a time when UK consumers are facing an unprecedented energy crisis due to rising costs. That’s why last year the Government announced its intention to cap the cost of electricity for those consumers, with it offering to cover the shortfall — which it intends to pay for in part with the windfall tax. 

However, despite the best intentions, many have warned that the windfall tax could deter investment in renewable energy within the UK. In fact, one producer of wind power has gone a step further, noting that it intends to take legal action against the windfall tax. 

Community Windpower, who currently operates eight wind farms in Scotland and has five more planned, informed ministers of its intent to sue the Government over the policy, noting that the levy was “unfairly disproportionate, discriminatory and adverse to the Government’s Net Zero Strategy.”

Rod Wood, Managing Director of Community Windpower, noted, “This measure not only leaves Ministers’ green credentials in shreds, it will also suck hundreds of millions of pounds out of investment in green energy, hammering renewable industries and costing high quality jobs.

“The levy proposals are at loggerheads with the government’s obligation to cut carbon emissions, abide by fair subsidy rules and foster investor confidence. We are now left with no option but to seek the court’s intervention.”

If the threat of legal action is not enough for the UK Government, it also faces the potential of an earlier-than-planned shrinking of the UK’s nuclear fleet. That’s because EDF has warned that it may shut down two of its nuclear power plants as a result of the implementation of the new windfall tax, noting that the expense of keeping them open makes the business case for their extended life harder. 

Previously EDF had announced that Hartlepool and Heysham 1 power stations would remain operational beyond the planned end date of March 2024. Given the windfall tax’s implementation, the company is now reconsidering those plans. 

The threat from EDF comes at a difficult time for the UK Government as it recommits to its promise of reaching its net zero goal through innovation and a renewed push for future nuclear power stations.

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