Measure
A new temporary levy has been announced to apply to excess profits produced by low-carbon electricity generators. This will apply at 45% on income from electricity sold at prices exceeding a £75/MWh benchmark price. The levy will only apply once a £10m per annum allowance has been exceeded.
Companies generating over 100GWh per annum of electricity in the UK from nuclear, renewable and biomass sources, other than electricity that is generated under a Contract for Difference (CfD) entered into with the Low Carbon Contracts Company.
The levy will apply from 1 January 2023 and will be legislated to end by 31 March 2028.
A windfall tax on low-carbon renewable generators has been widely trailed following the introduction of the Excess Profits Levy for upstream oil & gas companies in May 2022, and therefore today’s announcements are unlikely to be of surprise to industry. The targeted nature of the measure, with only sales above the £75MWh benchmark price being subject to the levy, will be welcome; as will the exclusion of CfD projects, battery storage, pumped storage and fossil fuel generation. However, there will inevitably be some concerns as to potential complexities in respect of calculating the levy where electricity is sold intra-group (particularly cross-border); whether the benchmark price has been set at the right level; the potential impact on investment in future renewable projects (particularly merchant projects); and the risk that a temporary measure becomes a permanent one.