Jeremy Hunt recently delivered the Autumn Statement – an overview of the government’s plans to improve the UK economy amidst soaring energy prices and a worsening cost of living crisis. Below we break down some of the key changes and what it means for the deployment of renewables moving forwards.
As part of the statement, Mr Hunt introduced the ‘Electricity Generator Levy’, a temporary 45% tax that will be levied on revenues to capture the ‘extraordinary returns from low-carbon UK electricity generation’, starting in January 2023 and remaining in place for the next five years.
While the full details of the levy and how it will apply is still emerging, we are not concerned about Thrive’s ability to continue funding, building and operating clean energy projects. We can, however, see how it will frustrate growth across the renewables sector, especially when renewable energy generators are paying disproportionately more than all other types of electricity generation and oil and gas companies.
With many households feeling the effects of rising wholesale gas prices – a result, in the most part, of Russia’s invasion of Ukraine and the subsequent reduction of gas supplies to Europe – oil and gas companies have been subject to a windfall tax since May. This means that they have had to pay an additional 25% tax on their profits but including an 80% investment allowance. The government has now increased this to 35% and an investment allowance remains.
What does this mean for development?
As a business that funds, builds and operates renewable energy projects across the UK, we’re happy to part of a collective effort to alleviate the pressure for households that are struggling to pay their bills.
However, we are concerned that the government’s approach will incentivise investment in fossil fuels – something that is not compatible with achieving net zero, or tackling the climate emergency, especially when our reliance on fossil fuels is what has caused this energy crisis in the first place. It’s frustrating to see that the renewables sector is being asked to pay a 45% levy on revenue, with no incentive for investment, while oil and gas businesses are having to pay an additional 35% tax on profit, with a 29% investment allowance. This means renewables will effectively be subsidising fossil fuels, which feels like an own goal on the journey to net zero.
While we recognise that we must work together to support with energy bills in the short-term, we need to re-think how the UK’s electricity market is structured if we’re to avoid price shocks in future. This would mean moving to a capacity-priced system rather than the marginal-priced system that we have in place today. In doing so, we believe the impact of the current gas price crisis would be materially reduced and consumers could directly benefit from the lower prices that renewables bring. This would also perhaps increase public backing and further accelerate the transition to a renewables based grid.
It’s not all bad news
With energy bills now doubling for many households, the government has renewed its focus on building the UK’s energy security, which will supposedly be delivered through major investment in clean technologies – notably offshore wind, carbon capture and storage – and greater energy efficiency.
From what we can see, smaller developers and in particular community energy groups will be exempt from the levy due to their size. This means that we can continue providing these organisations with the funding, speed, certainty, and skills to get new renewable projects built. It’s critical that communities are put at the heart of the clean energy transition, so we’re keen to support as many communities as possible in taking ownership of their energy supply in a way that keeps profits and green opportunities local.