UK Government Forges Ahead with Electricity Generator Tax
The UK Government has validated a new Energy Generation Levy (EGL), set to take effect from 1st January 2023 and remain in place until 31st March 2028. This levy, part of the broader EGL, aims to control costs for consumers by limiting the expenses that can be recovered by large energy generators.
The EGL will primarily impact outstanding invoices exceeding GBP 10 million in an audit period, affecting existing and potential investors in the UK clean power market. Notably, earnings from the sale of electricity produced under a Contract for Difference (CfD) are exempt from the EGL.
The levy will apply to nuclear, biomass, and energy from waste generators, excluding revenues from storage and cutting-edge storage technologies such as hydrogen. Special rules will apply to JVs and companies with significant minority investors.
A single benchmark cost of GBP 75 per MWh has been established for all energy generation models and will remain in place until April 2024. The EGL will be collected similarly as Corporation Tax: information of the levy will need to be self-assessed in business income tax return, and amounts will become due and payable in alignment with Corporation Tax.
The EGL will focus on the biggest generators: company teams or standalone firms that produce over 50 GWh annually of power in the UK, connected to the UK national transmission network or local distribution networks. Payments of the EGL will rely on the taxpayer's audit referral date, with the first quarterly instalment payment expected to be on 14th July 2023 for large companies with a December year end.
The introduction of the EGL has been met with heavy objection from clean power market individuals. The levy is intended to be a temporary step towards controlling costs and ensuring a more balanced energy market. However, its impact on investors in the UK clean power market, including the emerging clean hydrogen sector, remains to be seen.
For a more accurate assessment of the EGL's impact on the clean hydrogen market, it is crucial to consider specific UK policies and initiatives directly related to clean energy and hydrogen production. These might include tax incentives or subsidies to encourage investment in green technologies.
[1] HM Revenue & Customs. (n.d.). Business expenses. Retrieved from https://www.gov.uk/business-expenses [4] HM Revenue & Customs. (n.d.). Capital allowances: plant and machinery. Retrieved from https://www.gov.uk/guidance/capital-allowances-plant-and-machinery
The Energy Generation Levy (EGL) will affect investors in the UK's clean power market, particularly those involved in the finance of businesses exceeding GBP 10 million in an audit period. Moreover, the levy, while only applicable to nuclear, biomass, and energy from waste generators, may influence investors in the emerging clean hydrogen sector due to its temporary nature and potential impact on costs.
