UK prime minister Rishi Sunak is examining a U-turn on another of his predecessor’s energy policies by scrapping a revenue cap on low-carbon electricity generators in favour of a more straightforward windfall tax.
Treasury officials are looking at extending an energy profits levy (EPL) on oil and gas producers, which Sunak introduced in May when he was chancellor, to electricity generators.
This would replace the revenue cap introduced by Liz Truss as one of her last acts as prime minister, even though legislation supporting the latter policy was passed by parliament this week. The cap applies to low-carbon electricity companies, such as the owners of wind and solar farms.
Truss’s policy, which is similar to EU proposals, was announced less than two weeks ago, although the government has yet to determine the level of the cap.
The trade body Energy UK, which represents companies including Centrica, EDF Energy, Eon and SSE, had complained the revenue cap risked being even more punitive than the 25 per cent levy on oil and gas producers.
The latter was introduced alongside a generous investment allowance that enables oil and gas producers to reduce their tax bills if they invest in new drilling projects in British waters.
Sunak met with chancellor Jeremy Hunt on Thursday to discuss possible tax rises and spending cuts worth up to £50bn a year before the November 17 Autumn Statement.
One senior government official confirmed ministers were considering replacing the revenue cap with an extended levy, but insisted “no decisions have been taken”. The possible widening of the EPL to include electricity generators was first report by the Daily Telegraph.
Hunt and Sunak are also looking at a potential increase and extension of the levy beyond is expiry date of December 2025. The levy raised oil and gas producers’ headline tax rate to 65 per cent from 40 per cent previously when it was introduced in May.
Meanwhile, the owner of several fracking licences has threatened the UK government with possible legal action after Sunak this week reinstated a moratorium in England on the shale gas extraction technique — reversing another of his predecessor’s flagship energy policies.
London-listed IGas Energy, which owns shale gas licences in Lincolnshire, Nottinghamshire and South Yorkshire, called the government’s fracking U-turn “totally unwarranted” and said it would “reserve the right to pursue any legal process available to us to recover the losses that we have incurred”.
Fracking companies were blindsided when Sunak told the House of Commons earlier this week that he would stand by a 2019 Conservative party manifesto pledge to effectively ban fracking “unless the science shows categorically that it can be done safely”.
The moratorium in England had been lifted just over a month earlier by Truss, who had claimed shale gas could be flowing “in as soon as six months” to boost Britain’s domestic energy supplies.
Shares in IGas Energy have lost more than 30 per cent since the announcement, while those of Egdon Resources, another fracking hopeful, fell more than 28 per cent.
IGas’s interim executive chair Chris Hopkinson on Friday said the company and its shareholders had invested “significant sums” in the development of shale gas both before the moratorium was originally introduced in 2019, “and again during this political debacle”.
The company would not disclose the extent of its losses but one person familiar with the industry suggested sector-wide they could amount to £500mn.
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