One of the UK’s largest onshore wind operators has called on the government to exclude new developments from its windfall tax on renewable electricity generators, claiming it has made investments “almost impossible”.
Community Windpower, a private company that operates eight wind farms in Scotland, repeated a threat to sue the government — first made in December — unless alterations were made to the Electricity Generator Levy (EGL) introduced last year.
Renewable, nuclear and biomass companies face a 45 per cent levy on wholesale revenues above £75 per megawatt hour under the EGL. The measure was announced by chancellor Jeremy Hunt in November to help pay for the subsidy scheme to partially shield households from high energy prices in the wake of Russia’s invasion of Ukraine.
Following the company’s initial threat to take legal action over the windfall tax, the government “has simply refused to engage on the EGL over recent months”, said Rod Wood, managing director at Community Windpower.
He added: “Ministers seem oblivious to the very real damage that this discriminatory and regressive levy will do. Without changes to the EGL, shovel ready projects simply will not get built.”
Community Windpower is proposing to invest around £1.5bn in new onshore wind by 2025. It claimed the levy was “discriminatory” as gas and coal-fired electricity generators were excluded. The tax was intended to capture some of the “exceptional” revenues made by renewables generators, who were unaffected by the sharp jump in input prices, as electricity prices soared.
Some low-carbon power companies, including Community Windpower, have enjoyed even higher revenues as they benefit from a longstanding government subsidy scheme called the “renewables obligation”.
Community Windpower said it had retained law firm Mishcon de Reya to explore legal options if amendments were not made to the EGL in parliament’s upcoming finance bill, which is expected in the next few weeks.
An analysis commissioned by the company found that if the government excluded new developments from the levy, the Treasury would still raise more than 95 per cent of the expected revenue from the windfall tax, which will be in place until 2028.
The company wants the government to bring forward the date from which the threshold price of £75 MW/h is adjusted for inflation from January 2024. It said not doing so would exclude “the full period of high inflation and skyrocketing costs since the invasion of Ukraine”. The levy took effect in January.
The company said the high inflationary environment had pushed the “break-even” rate for a new onshore wind project as high as £83 MW/h, making new projects “almost impossible” with the EGL in place.
Wood also called for renewable developments to qualify for offsets against the levy, mirroring the arrangement in the oil and gas sector where as much as 80 per cent of a separate windfall tax on North Sea fossil fuel producers could be reduced through qualifying capital investments.
The government has proposed reforming planning regulations that have led to an effective ban on onshore wind farm developments in England since 2015, but the industry fears the changes may have little effect. Onshore wind farm developments are allowed in Scotland, where they make up more than two-thirds of renewable capacity.
The government said the levy was a “temporary measure”, adding: “The continued investment of generators in the industry is vital to our long-term energy security and this levy still leaves companies with a share of the upside they receive at times of high wholesale prices”.
Additional reporting by Robert Wright