No Windfall Tax On Renewable Energy

No Windfall Tax On Renewable Energy

MAY 26, 2022

tags: Electricityroc

By Paul Homewood

The Chancellor has just announced his new package to cut energy bills:


I will let others comment on the merits or otherwise!!

But the package is being partially funded by a levy on North Sea Oil & Gas producers:


There have been misinterpretations about how this levy would operate, with some suggestions that it would apply to all of the business of BP, Shell and other UK registered companies. The Treasury has clarified this is not the case:


The concept is not a new one – indeed, the whole arrangement for taxation of North Sea oil is nothing more than an “excess profits levy”. And, of course, George Osborne did exactly the same as Chancellor when he increased the Supplementary Charge from 20% to 32% in 2011.

This time however there is a clever twist:


In short, this investment allowance will allow oil companies to avoid the new levy entirely, in so far as 80% of new investment is concerned, assuming the levy is short lived. If global oil prices remain high and the levy is retained, oil companies will still enjoy the bumper profits.

If these changes succeed in boosting new North Sea investment, it will be a remarkably astute move by the Chancellor. And, in turn, new investment will pay back government amply in years to come.

Sadly however, the government has succumbed to pressure from the overly powerful renewable lobby, and decided not to levy the windfall tax on electricity generators, principally nuclear and renewable:


The case for a windfall tax is really unanswerable, as not only are they making extraordinary profits, they are are also still receiving obscene subsidies.

Over the last six months, October to April, wind and solar companies have received an average price of £187.46/MWh, according to the CfD database. Compared to a historic market price of £50.00/MWh, this represents excess annual profits of £7.9bn for renewable generators under the ROC scheme. On top of that, of course, they have also received over £4bn in subsidies.

The renewable lobby has, naturally, been moaning that a windfall tax would destroy future investment in renewable energy. This is nonsense, as the ROC scheme is now shut to new projects, which will instead be paid a guaranteed fixed price, hence no need for any windfall levy. And as they keep telling us that wind and solar are much the cheapest generation, it is hard to see how they can fail to make a healthy profit regardless.

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