UK energy groups under pressure to use windfall profits for green investment
Britain’s electricity producers will come under pressure from ministers to invest their “extraordinary profits” in new green energy projects, rather than pay out the windfall to shareholders.
Some have made huge profits from rising electricity prices that have risen in line with the rising cost of gas, even if the power they produce comes from renewables or nuclear power.
Chancellor Nadhim Zahawi on Thursday will keep alive the prospect of hitting the generators with another windfall if they don’t invest their profits in renewable energy schemes.
“It’s one of a series of options,” said an ally of Zahawi. The Chancellor has instructed officials to draw up a list of policy alternatives for who will become Tory party leader and thus UK Prime Minister on September 5.
The chancellor and Kwasi Kwarteng, company secretary, will meet generators such as Centrica, Drax and RWE, among others, to discuss the energy crisis, including the sharp rise in household bills.
The meeting comes after warnings of a bleak winter for consumers, with average annual gas and electricity bills expected to hit £4,420 in the spring – more than three times the level at the start of this year.
While the government has announced around £15bn in aid, including a one-off payment of £400 to each household, the measures were unveiled when bills were expected to be around £2,800 by October, much lower than current forecasts.
Pressure to take further action to help households is mounting as rising energy costs threaten to plunge the economy in general into recession.
“The government is in a complete downward spiral,” said an industry figure who was aware of the planned talks.
“There is a certain panic. They look at everything and everything is on the table.”
No decisions are expected until Liz Truss or Rishi Sunak is elected leader next month by members of the Tory party, sparking accusations that the government is sleepwalking into crisis.
Frontrunner Truss has rejected the idea of further windfall gains on energy companies, saying last month it would send “the wrong message” to the world.
Kwarteng, who is tipped to be chancellor in a Truss government, is also opposed to windfalls, which he says deter investment.
Former Chancellor Sunak first proposed a potential £3bn to £4bn windfall on electricity producers, in addition to the new £5bn levy on oil and gas producers in the North Sea.
But Treasury work on the idea stalled due to technical difficulties in introducing the new levy. Sunak’s allies declined to say whether he was still in favor of more unexpected taxes on the sector.
Kwarteng has instead focused on energy market reform so that electricity prices more accurately reflect production costs.
But these reforms, which will require legislation, won’t take effect before the winter, raising the prospect of electric utilities making huge excess profits at a time of rising energy bills.
Ministers will therefore ask producers to set out their investment plans and what they can do to help consumers, as well as discuss their likely profits and how to distribute them to shareholders.
“The government continues to evaluate the extraordinary gains in certain parts of the power generation sector and the appropriate and proportionate steps to be taken,” a government spokesman said.
The talks are expected to explore the impact of lowering green taxes and VAT on existing bills and plans to increase the discount for warm homes. The government is also likely to investigate the plans of the energy companies in case a large number of customers refuse to pay their bills this winter.
Companies with significant generation capacity, such as France’s EDF – which owns the UK’s remaining nuclear power plants – have achieved stronger-than-expected revenues without a significant increase in generation costs.
The French state, which already owns 84 percent of the company, is in the process of fully nationalizing EDF and has asked the company to limit the increase in France’s electricity bill to just 4 percent this year.
Centrica, owner of British Gas, has also seen higher profits, thanks in part to its 20 per cent share of Britain’s nuclear fleet.