The energy sector has condemned the new windfall tax on electricity generators, announced in the Autumn Statement.
Yesterday (17 November) chancellor Jeremy Hunt unveiled his new budget, which included a 45% levy on profits for large-electricity generators.
“This windfall tax on low carbon power risks deterring investment, at a time when the chancellor should be incentivising clean energy. Unlike in oil and gas, under this levy companies which are making significant investments in renewables will get no tax relief and will be hit by a higher windfall rate,” said RenewableUK’s CEO Dan Mc Grail.
“Any new tax should have focussed on large, unexpected windfalls right across the energy sector, instead profits at fossil fuel plants are inexplicably exempted from the levy. Many renewable generators are on long-term, fixed price contracts and most other sold their power for this winter over a year ago, so they haven’t been making excess profits.”
This sentiment was echoed by many in the sector, who highlighted that the current crisis is caused by high gas prices, and therefore slowing down the switch to domestic renewables leaves Britain open to the impact of similar situations in the future.
“While the REA and its members recognise the immense economic challenges facing this country, we would question the wisdom of subjecting the cheaper, greener renewable power sector to a more punishing tax system than its oil and gas counterparts,” said Frank Gordon, director of policy at the Association for Renewable Energy and Clean Technology (REA).
“We note the exemption for smaller sites, but I would strongly urge the government to fix this disparity as there is a strong need for tax relief for low carbon investments to help stabilise energy prices and offer long-term energy security. This is crucial for getting investments in renewables moving again following the pause that resulted from the last few months of political and policy uncertainty.”
Over the last few months, the projected tight capacity and high power prices expected on the electricity system have been somewhat mitigated by record wind production, further emphasising the key role renewables will have in security of the system in the long term.
“It must be remembered that significant investment is needed in the UK power system to avoid climate catastrophe and reach energy independence in the UK,” added Sam Hollister, head of markets and engagement at LCP.
“Targeting established investors through the ‘Electricity Generator Levy’ could have a significant impact in meeting those ambitions, both directly and indirectly through harming investor confidence. LCP Delta analysis shows that even a 1% increase in the cost of capital for investors could increase the costs of delivering a low carbon power system in 2050 by £38bn – far outstripping the £14.2 billion expected to be raised by HM Treasury over the forecast period (2022-2028).”
Energy Price Guarantee: ‘Critical to reassess support’ before next winter
Beyond the windfall tax, there was some welcome news within the Autumn Statement, including the continuation of the Energy Price Guarantee for a further year from April at a rate of £3,000 for the average household.
According to Professor Karen Turner, director at the University of Strathclyde’s Centre for Energy Policy, the extension offers “something of a sigh of relief” with regards to preventing the energy crisis from worsening.
“The continuation of the Energy Price Guarantee is crucially important in terms of helping control inflation and giving certainty and confidence to households. However, it won’t improve household budgets on where they are now, given the impact of rising taxes and falling real take-home wages on incomes, combined with what will still be an increase in energy bills. We do, however, welcome the additional support to lower income household via energy and other payments, and confirmation that benefits will rise by 10.1% along with pensions,” she said.
“We are eager to see the detail on further support for businesses. This is crucial in fighting inflation and the broader cost-of-living, where households don’t only feel impacts through their own energy bills, but through the price of everything they buy, and where risk to businesses also brings risks to jobs and therefore household incomes.”
But some have highlighted that the support – which is expected to cost the government approximately £39 billion across the whole of the Energy Price Guarantee – will still see a significant increase in bills for households up and down the country already struggling with the cost of living crisis.
“Despite the support, an average household bill in April 2023 will still be over £1,000 more than just 12 months ago. While some measures targeted at the most vulnerable were announced, given that these are one-off payments, it will be critical to reassess support going into next winter before longer-term reforms are introduced in 2024,” said Dan Atzori, research partner at Cornwall Insight.
“Support for bills alone is neither sufficient, nor sustainable in the long run, which makes the commitment to increase funding for household energy efficiency all the timelier. The government should use all the leavers possible to bring down energy bills across the country, as it is demand as much as supply which will need to be curtailed if we are to stabilise energy costs and secure energy across the UK. We look forward to hearing more details on the energy efficiency taskforce.”
The news that bills will go up, even if they are still capped, will undoubledly worry millions of households up and down Britain therefore.
“Our recent consumer survey found 78% of Brits support keeping the price cap on energy bills in place, so an increase that plunges millions into fuel poverty is not what any households wanted to see,” said Mike Foster, CEO of the Energy and Utilities Alliance (EUA).
“This is particularly immoral while the Government’s own Boiler Upgrade Scheme, that is still in place, hands out £5,000 subsidies to the well-off to change their heating, while millions struggle to pay their bills. They have missed an open goal to solving some of the energy bills turmoil plaguing the British public. Redistributing these millions of pounds in pointless heat pump subsidies into insulation, efficiency measures, and bills support is really a no-brainer.”
Energy Efficiency: Too little, too late?
Another key element of the Autumn Statement was a commitment to invest £6 billion in energy efficiency from 2025. While the concept of increased support for the sector has been welcomed, many have been critical of the three-year wait till it comes into force.
“While it is good to hear the chancellor reaffirm our climate goals, we need to see the action that backs up the stated intent,” said Nigel Pocklington, CEO, Good Energy.
“Investment in energy efficiency is crucial today. It requires a mass insulation campaign today, not a taskforce to look at extra spending in three years’ time. And while the Truss government got a lot wrong, unblocking onshore wind would have rapidly unleashed huge quantities of cheap, clean power. Why roll back on that to prioritise slow nuclear?
“If we invest in renewables and reduce energy demand we can cut costs and cut carbon, for homeowners, for businesses and for the Treasury, all at the same time.”
Meanwhile others have highlighted the UK’s poor track record when it comes to implementing energy efficiency support schemes, for example the Green Homes Grant.
“Any investment in energy efficiency is to be applauded,” said Rob Doepel, EY’s managing partner for sustainability, UK & Ireland.
“However, we have seen announcements to support and encourage home improvements for energy efficiency in the past, but many have unfortunately not made a material impact on the UK’s housing stock as intended. For the funding to have the desired effect – that encourages a significant number of UK households to take advantage – more thought and action on implementation is required. Today’s announcement must be followed up by a pragmatic, practical, and easy-to-access process for households to engage.”
New nuclear: Industry voices concern over lack of support for faster generation technologies
The approval of Sizewell C has been broadly welcomed by the UK energy sector, which could help support energy security in the long term.
“With news of renewed investment in nuclear, this budget also reinforces our view that longer term we need to move away from fossil gas and switch our network over to hydrogen,” added the EUA’s Foster.
“Not only will this help to reduce emissions – which the chancellor pointed out was a priority in his speech – this level of energy independence would also free us from the global gas markets that Putin’s war has significantly impacted.”
But given the nature of the current crisis, there has been criticism of the lack of support for new generation technologies that could have stepped up over the next couple of years to support domestic, secure electricity generation.
“In [the] Autumn Statement, the chancellor claimed to put cheap, low carbon energy at the heart of the economy. But the measures outlined lack the vision needed to do this and instead focus on nuclear power,” said James Basden, co-founder and director of Zenobē.
“Nuclear projects tend to go over budget and behind schedule – Hinckley C, for example, is £5 billion over budget and 18 months behind. The long-term costs and hazards of decommissioning reactors and storing radioactive waste are not factored into project budgets, and worse, proposed government policy uses tax revenues to cover the high capital risks of nuclear developers. The plan to move ahead with Sizewell C is therefore wasteful and a misguided distraction.”