Britain plans 'de-facto windfall tax' on low-carbon energy producers

LONDON, Oct 12 (Reuters) - Britain has set out plans for a temporary revenue cap on low-carbon electricity generators, which the industry said was a "de-facto windfall tax" on renewable energy producers.

New Prime Minister Liz Truss said last month she was against imposing windfall taxes on businesses but the government is seeking ways to curb rocketing energy prices and raise revenues to help fund tax cuts.

Gas prices have soared across Europe and Britain following Russia's invasion of Ukraine, which have in turn driven up the cost of electricity.

Electricity prices are typically set by gas, so the new plan would apply to low-carbon generators that sell their power at those high prices but do not need to buy expensive fuel.

"Low-carbon electricity generators are therefore benefiting from abnormally high prices, while consumers are having to pay significantly more for energy generated from renewables and nuclear, even though they often cost less to produce," the Department for Business, Energy and Industrial Strategy (BEIS) said.

The "Cost-Plus-Revenue Limit" forms part of a broader energy support package announced by Truss last month that included a cap on the price of average household energy bills.

British lawmakers approved a 25% windfall tax on oil and gas producers in the British North Sea earlier this year.

The package, which is called The Energy Prices Bill and gives the government new emergency powers to carry out the proposals, was introduced in parliament on Tuesday.

Britain's move follows similar efforts in Europe where the European Commission has proposed setting a price limit of 180 euros ($175) per megawatt hour (MWh) on the revenue these renewables generators get for their power in the market.

RWE UK Country Chair Tom Glover said Britain's cap was a "de-facto windfall tax on low-carbon generators".

British Business and Energy minister, Jacob Rees-Mogg said the move was about correcting the discrepancy between the amount some power generators can make due to the design of the country's electricity market.

"It is not a windfall tax, it's clearly not a tax. It's nothing to do with the profits these companies are making," he said speaking on BBC radio on Wednesday

Power generators highlighted that if the measure is not well designed, it could impact investment in new projects.

"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, particularly given the 180 euro cap being implemented by the EU," a spokesperson for SSE said.

No details were given on the expected revenue price limit for the British scheme which would apply to generators in England and Wales.

BEIS said the measures would come into force at the beginning of 2023 and it will launch a consultation with industry before announcing precise details on how its temporary "Cost-Plus Revenue Limit", would work.

The government also said it was legislating for powers that would allow it to consider running a voluntary Contracts-for- Difference (CfD) process for existing low-carbon generators in 2023.

The CfD scheme is the is the government’s main mechanism for supporting low-carbon electricity generation.

A voluntary contract would grant generators longer-term revenue certainty and safeguard consumers from further price rises, the government said.

RWE's Glover said this was the most efficient and investor-friendly way to de-link the electricity price from the marginal gas price.

($1 = 1.0285 euros)

Reporting by Susanna Twidale, Muvija M and Nina Chestney; editing by David Evans and Jane Merriman

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Oversees and coordinates EMEA coverage of power, gas, LNG, coal and carbon markets and has 20 years' experience in journalism. Writes about those markets as well as climate change, climate science, the energy transition and renewable energy and investment.