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“Windfall Tax” for low-carbon energy companies in the U-turn by Liz Truss

Business Secretary Jacob Rees-Mogg has launched plans to limit the revenues of low-carbon power producers, effectively tantamount to a temporary windfall tax on the sector’s profits.

Labor said Prime Minister Liz Truss was “kicked and screamed” into the about-face after months of fighting back calls for more levies on energy companies’ extraordinary profits.

The cap could reportedly limit prices to just £50-70 per megawatt-hour – compared to current prices of around £500 – with the government taking on up to 90 per cent of wholesale revenues above that level.

Mr Rees-Mogg’s business department declined to confirm figures that are the subject of consultations. But they said the scheme has “the potential to save billions of pounds for UK billpayers, while allowing generators to recover their costs and generate a decent income”.

However, industry body Renewable UK said the scheme as designed would mainly affect older wind and solar projects, but raised concerns it could skew future investment towards fossil fuel sources.

Dan McGrail, CEO of RenewableUK said: “We fear that a price cap will send the wrong signal to renewable energy investors in the UK. A price cap that acts as a 100 percent windfall tax on renewable energy revenues above a certain level, while taxing excess oil and gas profits at 25 percent, risks shifting investment to the fossil fuels that power them caused the energy crisis.

“Over this decade we need to attract £175bn of investment in safe, domestic wind power and we are already seeing the investor furor that the EU’s proposed price cap is causing in the European market.

“In order to limit the negative impact, it is important that a cap is set at a level that does not make the UK less attractive to investors than the EU, is technology neutral and includes a clear sunset clause.”

Ministers have been looking for ways to curb unprecedented gains from nuclear, wind and solar energy resulting from the fact that their prices are tied to gas, the cost of which has skyrocketed in the wake of the Russian invasion of Ukraine.

Ms Truss had previously opposed Labor’s call for an extension to the windfall tax imposed on oil and gas producers in the North Sea by former Chancellor Rishi Sunak, insisting such a tax would deter future investment.

Ed Miliband, Shadow Secretary of State for Climate Change, said: “The Government has finally accepted in principle Labor’s call for a windfall tax on excess electricity generator profits. After months of telling the country they were totally opposed to the principle of a windfall tax, they were kicked and shouted at to implement it.

“This shows once again that Labor is leading the agenda in British politics, with another screeching about-face from a government in office but not in power. But delaying government action will have cost billions, and the public will pay the price.

Friends of the Earth policy leader Mike Childs said: “While it’s wrong for any energy company to seek excessive profits at the expense of consumers, Liz Truss’ government appears to be cracking down on green energy companies more than it does on the fossil fuel giants .

“Any unexpected tax or similar measure for renewable energy companies must be designed in a way that motivates additional investment in renewable energy – not discourages it.

Energy stocks have taken a hit since financial times reported last weekend that a sales cap was being considered.

Commerce Department insiders insisted that the “cost-plus-revenue cap” is not a windfall tax, as it applies only to excess earnings from unusual trading conditions and not to all profits.

It is expected to apply to low-carbon installations not currently covered by a contract for difference and will apply in England and Wales from early 2023. It will remain in effect until markets return to normal.

The announcement came as the Government unveiled its Energy Prices Bill to enshrine in law the support Ms Truss had offered to households and businesses last month.

The package caps average annual household gas and electricity bills at around £2,500 for two years, at an estimated cost of £60bn in the first six months.

Mr Rees-Mogg said: “Businesses and consumers across the UK should pay a fair price for energy. Faced with skyrocketing prices as a result of Putin’s heinous invasion of Ukraine, the government is taking swift and decisive action.

“We’ve been working with low-carbon producers to find a solution that ensures consumers don’t pay significantly more for renewable and nuclear power.

“That is why we have stepped in today with extraordinary powers that will not only ensure vital support reaches homes and businesses this winter, but will transform the UK into a nation that provides safe, affordable and well-priced, homegrown energy for all. ”

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