Utility Week

Generation Analysis Renewables pay the price forwindfall profi ts Low-carbon generators have enjoyed a surge in revenues as electricity prices have soared. Now the government has decreed they share their good fortune with the taxman. R elations between the renewables industry and the government are prob- ably frostier now than they have been at any point since 2015 when new onshore wind farms were e ectively barred in the English countryside. The main reason for this souring is new chancellor Jeremy Hunt's decision in last month's Autumn State- ment to extend windfall taxes from oil and gas pro- ducers to low-carbon gen- erators, including biomass, nuclear and renewables. The new Electricity Genera- tor Levy (EGL) will be charged on 45% of the revenues that such generators receive for output sold above £75 per megawatt-hour. Power gen- erated under Contracts for Di erence (CfDs) will be exempt from the levy, as will revenues from Renewables Obligation CertiŽ cates and Capacity Market payments. "Inexplicable" government could say it wasn't implement- ing another windfall tax. It was bad policy designed to meet political need rather than designed to actually deliver something useful." Meanwhile, the government's other wheeze, to get the industry to agree to a vol- untary CfDs for older projects that are now enjoying windfall proŽ ts, was proving "very, very hard to deliver", he says. And the industry now has some certainty on which to base its planning, says How- ard: "Although there were some people who talked about this impacting investor conŽ - dence, there are also some who just wanted clarity. At least they know now what the rules of the game will be." Ultimately, the UK still remains an attrac- tive place to invest in renewable energy, says Howard, whose consultancy works exten- sively in the rest of Europe. Crucially, he points out, the CfD regime is not within the scope of the new levy. "The only way CfD holders will be hit by this is those who delayed the start date of their con- tract," says Birkett. The decision not to touch CfDs, combined with the EU's decision to impose its own gen- eration windfall tax, means he feels "pretty optimistic" about the UK renewable indus- try's continued ability to attract investment. Howard agrees: "It's not like the UK is the only place that's doing this and everywhere else is standing still." Aurora has calculated that renewables companies will beneŽ t more from the UK scheme as long as wholesale prices stay above £225/MWh, which he expects to remain the case until the end of 2024. "For a couple of years that means UK gen- erators will get more upside. When the price and "bizarre" were two of the more printable words used to describe the government's decision to exclude fossil fuel generators from the levy (see box, facing page). However, Ed Birkett, head of energy and climate at right-of-centre thinktank Onward, reckons the government has struck the right balance, given the tight spot it has found itself in as a result of spiralling energy prices. "It [the levy] is not a cause for celebra- tion but given the extraordinary proŽ ts being made in some parts of the renewable sector, it's inevitable the government acted, not least to o set some of the costs of supporting households with their energy bills. "We've ended up in the right place." Richard Howard, research director at con- sultancy Aurora Energy Research, agrees, noting that it doesn't "feel completely wrong" for the government to take back a slice of the revenues developers are earning when they are many times the sums expected when they invested in these projects. Adam Bell, former head of energy strat- egy at the Department for Business, Energy & Industrial Strategy (BEIS), also concurs. "This was a less bad outcome than some of the things the government had in mind." One of the options the government is understood to have been considering was a 100% tax on all revenues above a certain level, like the levy on all revenues being introduced by the European Union. The EGL is also a better outcome for the industry than the Cost-Plus Revenue Limit, which was rushed on to the stat- ute book under short-lived prime minister Liz Truss only to be abandoned. Describing this now defunct mecha- nism as "horrendously complicated", Bell says: "It was entirely designed so the at any point since 2015 when new onshore wind farms were e ectively barred in the English countryside. The main reason for this souring is new chancellor Jeremy Hunt's decision in last month's Autumn State- ment to extend windfall taxes from oil and gas pro- ducers to low-carbon gen- erators, including biomass, nuclear and renewables. The new Electricity Genera- tor Levy (EGL) will be charged on 45% of the revenues that such generators receive for output sold above £75 per megawatt-hour. Power gen- erated under Contracts for Di erence (CfDs) will be exempt from the levy, as will revenues from Renewables Obligation CertiŽ cates and Capacity Market payments. "Inexplicable" from the levy (see box, facing page). However, Ed Birkett, head of energy and climate at right-of-centre thinktank Onward, reckons the government has struck the right balance, given the tight spot it has found itself in as a result of spiralling energy prices. "It [the levy] is not a cause for celebra- tion but given the extraordinary proŽ ts being made in some parts of the renewable sector, it's inevitable the government acted, not least to o set some of the costs of supporting households with their energy bills. "We've ended up in the right place." Richard Howard, research director at con- sultancy Aurora Energy Research, agrees, noting that it doesn't "feel completely wrong" for the government to take back a slice of the revenues developers are earning when they are many times the sums expected when they invested in these projects. Adam Bell, former head of energy strat- egy at the Department for Business, Energy & Industrial Strategy (BEIS), also concurs. "This was a less bad outcome than some of the things the government had in mind." One of the options the government is understood to have been considering was a 100% tax on all revenues above a certain level, like the levy on all revenues being introduced by the European Union. The EGL is also a better outcome for the industry than the Cost-Plus Revenue Limit, which was rushed on to the stat- ute book under short-lived prime minister Liz Truss only to be abandoned. Describing this now defunct mecha- nism as "horrendously complicated", Bell says: "It was entirely designed so the 28 | DECEMBER 2022 | UTILITY WEEK

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