Windfall tax ‘could hit green ambitions’ 

Scotland’S renewable energy industry has warned a “windfall tax” aimed at significantly reducing domestic bills will threaten future investment in green electricity.

The UK Government yesterday introduced legislation that puts a ceiling on what wind farms and nuclear power plants earn to keep household energy bills down.

The temporary “cost-plus revenue limit” is aimed at cutting the impact of wholesale prices on consumers and the taxpayer, capping the amount green energy generators can make.

Renewable generators have been able to sell energy at wholesale rates dictated by gas, forcing up costs for consumers even though renewable energy is generally cheaper to produce.

Ministers say the new steps are aimed at “breaking the link between abnormally high gas prices and how much revenue low-carbon electricity generators receive”.

The Energy Prices Bill also puts into law ministers’ promises to cap dual fuel bills to an average of £2,500 for the next two years.

Ministers say the proposals would ensure consumers and businesses pay a fair price for energy.

But Scotland’s energy firms have warned the intervention could jeopardise the country’s green ambitions.

The move means that Glasgow-based Scottishpower and Perth-based SSE are among the major energy firms that now face having their green energy revenues slashed.

They fear the intervention will hit renewables investment just as the country is pushing for supply security and to meet its climate goals.

They say the cap should not be set so low that it stifles investment in low-carbon technologies such as wind and solar, which will be needed to reach the net zero emissions targets.

The precise mechanics of the renewables “windfall tax” will be subject to a consultation to be launched shortly.

The UK Government has given no details of the expected price limit on revenues generated by renewable energy companies.

When asked how much money the cap scheme would raise for the government at a committee hearing, climate minister Graham Stuart said he did not have the figures “immediately to hand”.

But Claire Mack, chief executive of Scottish Renewables, said the UK government plan will act as “a 100 per cent windfall tax on renewable generators above a certain as-yet unspecified level”.

Ms Mack said: “Enacting a revenue cap on low-carbon generators ignores the fact that in the long-term, the best way to cut household energy bills is by increasing energy efficiency and building more of the cheap renewable electricity capacity which our industry can provide.

“Energy is a global market and policy decisions made by the UK Government in recent years have already damaged the country’s attractiveness to the international investors, who we need to fund the country’s £1.4 trillion transition to net-zero.

“The renewable energy industry wants to actively engage with government on this issue to protect the opportunity for investment and growth that developing and accelerating renewables in the UK presents. The long-term solution to this problem is firm commitments to cheap, clean renewable capacity and we would urge UK Government to keep that front of mind.”

She said the revenue cap proposed by the UK Government required “careful consideration to ensure it will incentivise the energy system the UK needs, a system which utilises the cheapest forms of clean power supplied at a stable price”.

The Energy Prices Bill also puts into law ministers’ promises to cap dual fuel bills to an average of £2500 for the next two years.

The UK Government says their cap is aimed to “break the link between abnormally high gas prices and how much revenue low-carbon electricity generators receive”.

Renewable generators have been able to sell energy at wholesale rates dictated by gas, forcing up costs for consumers even though renewable energy is generally cheaper to produce.

But Dan Mcgrail, chief executive of Renewableuk, said that the move risks sending the “wrong signal” to investors in renewable energy in the UK, and skewing investment towards fossil fuels.

An SSE spokesman 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’ After all, the key lesson of the current energy crisis is the need to bolster our homegrown energy defences.

“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.” A Scottish Government spokesman spokesman said: “This mechanism must be designed carefully in order not to damage investment in our renewables sector, as well as not unfairly penalising those companies which are not making super-normal profits.”

The UK government said it has been working closely with industry on the detail of the proposal, ahead of it coming into force from the start of 2023.

“It will ensure consumers pay a fair price for low carbon energy and has the potential to save billions of pounds for British billpayers, while allowing generators to cover their costs, plus receive an appropriate revenue,” said a UK Government spokesman.

Keith Anderson, chief executive of Scottish Power, said it was deeply worried at the suggestion renewable generators are making “extraordinary profits”.

He said: “It’s disappointing that such a significant market intervention by the government has come with so little detail, all this does is create uncertainty. This crisis has been caused by the cost of gas and it’s strange the proposed solution is to cap the price of low-carbon generation and to leave the gas sector untouched.”

UK ministers believed the cap would allow consumers to pay a fair amount for their electricity, and ensure electricity generators are not unduly profiting from the energy crisis caused in part by Russia’s invasion of Ukraine.

“This is planned to temporary to deal with the exceptional market conditions driven by high global gas prices, in light of Russia’s invasion of Ukraine, and it is anticipated that this will endure until such time as the markets return to normal”, said a spokesman.