LONDON, March 13 (Reuters) – A cap on revenue and the lack of the kind of incentives offered to oil explorers are blocking the development of renewable energy in Britain, say industry officials who are pushing for changes ahead of this week’s budget .
The British government has set targets for large increases in wind generation, for example, as it seeks to reach a goal of net zero emissions by 2050 and to become more independent of imported energy after the supply disruption caused by Russia’s invasion of Ukraine.
Representatives of the renewable energy sector say those targets could be missed without policy changes, especially as other countries do more to attract investment in green power.
Among the most contentious issues is the UK’s Electricity Generator Levy (EGL), which the government implemented from the beginning of this year to combat high energy prices and which the industry says is a “de facto windfall tax”.
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Rod Wood, chief executive of wind energy developer Community Wind Power, is among those seeking changes to EGL in the UK’s March 15 budget.
“The (EGL) tax will kibosh the sustainability targets the UK has set,” he said.
Specifically, he wants it to include an investment allowance like the one oil and gas companies receive under their equivalent Energy Profits Levy (EPL).
The EPL includes an investment incentive that means oil and gas companies can offset £91.40 from their tax bill for every £100 spent on new production.
The UK government’s targets include increasing offshore wind capacity to 50 gigawatts (GW) from around 14 GW now.
Wood said without tax changes his company would be forced to halt development of three Scottish onshore projects totaling 1.2GW, which by 2025 could generate enough power to power more than a million homes.
“When you look at how much costs have risen in the UK compared to stimulus packages offered in the US, it’s not hard to see that someone who can will want to move business there,” he said.
Last year, US President Joe Biden’s administration signed the Inflation Reduction Act, which provides a $370 billion clean tech support package.
INFLATION, SUPPLY CHAINS, INTEREST RATES
Other developers say the combination of taxes, high energy prices, supply chain bottlenecks, inflation and rising interest rates means their projects are at risk.
Denmark’s Ørsted said last week that its Hornsea 3 project in the North Sea, which at around 3GW would be the world’s largest wind farm when built, could be put on hold unless it gets support such as tax breaks because costs have risen.
Another major project is the Vattenfall Group’s Norfolk Offshore Wind Zone.
Rob Anderson, its project director, said the UK government “must show its support for the sector in next week’s Budget through capital grants”.
Under the EGL, a 45% levy on low-carbon power generators applies to income from electricity generation at a total cost of more than £75 ($89) per megawatt hour (MWh).
With wholesale electricity prices around £120/MWh, the level at which the tax kicks in is too low, Wood said, citing more generous charges in Europe.
The European Commission has set a revenue cap for power companies, requiring them to hand over to national governments excess revenue they get for selling their non-gas-produced power above 180 euros ($190)/MWh.
THE OIL AND GAS SECTOR ALSO UNSATISFIED
Oil and gas producers, who have been subject to a windfall tax since May 2022, also want change.
They say the Energy Profit Levy (EPL) windfall tax, which last year raised the tax rate to 75%, one of the highest in the world, is reducing manufacturers’ access to finance.
Renewable energy developers say the oil and gas sector has benefited from tax breaks for years, while green groups say the sector should no longer be given any incentives given the need to phase out fossil fuels.
The UK fossil fuel industry says investment is still needed in the aging North Sea basin, and home-grown fuel is far less polluting than importing oil and gas from faraway places where supplies can be more easily disrupted.
It also says that higher tax rates should only come into effect when profits are derived from prices above a yet-to-be-agreed price floor based on a historical average, rather than all profits regardless of price, as is currently the case.
The industry also wants the levy to apply to realized prices, which include hedging results, rather than broader market prices.
Many oil and gas producers hedge large chunks of their production to meet lenders’ demands, meaning their exposure to changes in market prices is limited.
Chancellor of the Exchequer Jeremy Hunt rejected calls from the oil and gas industry to change the windfall tax at a meeting in December.
Additional meetings, including in late February with Treasury officials, have taken place, but no change was expected from the March 15 budget, said two industry sources, who declined to be named.
Meanwhile, Britain’s biggest oil and gas producer Harbor has announced job cuts and rejected the latest round of licences. TotalEnergies ( TTEF.PA ) cut its UK investment program by a quarter.
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Reporting by Susanna Twidale, additional reporting by Shadia Nasralla; editing by Barbara Lewis
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