‘Be careful what you wish for’: OEUK warns against expanding windfall tax
Windfall taxes are a “really blunt” instrument that threatens to deter investment in the North Sea, warned the boss of one of the UK’s leading energy bodies.
Mike Tholen, acting chief executive of Offshore Energies UK, raised concerns over proposals to expand the Energy Profits Levy to electricity generators.
He told City PM the Government needed to be “really careful” because the country needed the domestic energy sector to keep investing and generating supplies at a time when energy security is so important.
With investment decisions and domestic projects taking time to establish, he spoke against tampering with the financial climate further.
Tholen said: “It’s a very delicate eco-system out there, so be very careful what you wish for. You may get a result that is simply not conducive to the challenges we all face.”
The Energy Profits Levy is a further 25 per cent on North Sea oil and gas operators, alongside the 40 per cent special corporation tax rate companies already pay.
It was brought in earlier this summer by former Chancellor Rishi Sunak.
The Government hopes this will raise a further £5bn this year – which will go towards easing household energy bills, with price cap set to rise 80 per cent to £3,549 per year from October.
Prior to his exit from office, Sunak slammed electricity producers for making “extraordinary profits”, with renewable generators being able to charge wholesale prices for their comparatively cheaper power generations.
He revealed the Treasury was examining “appropriate steps” to ensure the sector contributed to support for households facing soaring energy bills.
As a compromise measure, trade body Energy UK has called for nuclear plants and electricity generators to ditch their lucrative renewable obligation certificates (ROC) in favour of long-term deals with lower returns.
The industry body is backing proposals first outlined by the UK Energy Research Centre for a voluntary shift from ROC’s to an agreement mirroring the newer contracts for difference (CfD) scheme.
It believes the proposals could reduce energy bills by between an estimated £10.8-£18bn per year from next year, which would equate to a £150-£250 saving for a typical household.
This is in addition to a £6.7-£11.1bn cut for non-domestic users, allowing customers to benefit further from cheap domestic low carbon power.
OEUK’s comments about the windfall tax follow the publication of its Economic Report – which revealed combined bills for households across the UK will reach £108bn when the new price cap takes effect in October.
As for supplies, it predicted there could be as much as 15bn barrels of oil and gas available for extraction in the North Sea, enough to help meet our energy needs for the next 15 years.
The industry body is calling for climate checkpoints to be clarified to ensure more exploration projects can be licenced domestically.
It has also urged the government the development of offshore wind projects to be sped up to meet the country’s target of 50GW of generation capacity by the end of the decade.