Government’s Energy Profits Levy puts green project planning in doubt

Last week’s fiscal statement attempted to respond to the ongoing energy costs crisis, with Chancellor Jeremy Hunt introducing new measures and charges on energy firms.

Hunt confirmed that the Energy Profits Levy, applied to oil and gas producers, will be increased from its current 25% rate to 35% from 1 January 2023. At the same time, the tax reliefs available to these firms will be reduced from 80% to 29% for all expenditures except spending related to decarbonisation profits.

Additionally, a temporary windfall tax of 45% is being applied to all electricity generators on the same date. Hunt expects a windfall tax to remain in place for oil and gas firms until the end of March 2028. It should not be removed before this point.

The 45% levy applies to low-carbon generation, however. Collectively the levy is expected to raise around £14bn from next year. Target revenues from low-carbon generation will be from average prices above £75 per MWh.

At the time SSE chief executive Alistair Phillips-Davies responded to the announcement, stating that a well-designed levy would be “reasonable”.

“SSE has always believed in paying our fair share of tax and think a well-designed levy on extraordinary profits, where they are actually realised, is reasonable,” Phillips-Davies said.

“We also believe in treating the cause, not just the symptoms of the energy crisis and we look forward to hearing more from government about how it will support the massive investment in homegrown clean energy that this country needs to end our dependence on expensive imported gas and cut bills in the future.

“Our commitment to this is clear with a potential £24bn pipeline of shovel-ready projects in the UK that will support thousands of good jobs in communities across the country. We will now work constructively with the government to see how this new tax will work in detail and how we can deliver a cheaper, cleaner and more secure homegrown energy system that protects families and business from energy price shocks in the future.”

Since then the SSE boss has spoken to the BBC, noting that the levy will mean the company will have less to invest and that there was “no doubt” the firm would need to review some of its green investment spending plans

He told the BBC’s Today programme: “We still want to spend, we still want to invest but this windfall tax is going to hit us. It’s going to take money away from us, and therefore we won’t have as much to invest.

“To say that imposing a 45% windfall tax on some areas of our business will not impact investment plans is nonsense.”

Prior to the statement announced, ScottishPower’s chief executive, Keith Anderson, told The Times newspaper that it may have to slow down investments based on the tax to renewables.

Anderson has since told Windpower Monthly that he was “deeply disappointed” by the levy on green projects.