UK Government Continues Implementation of Electricity Generator Charge
UK Government Introduces Energy Price Guarantee Levy (EGL) on Power Producers
The UK Government has introduced a new levy, the Energy Price Guarantee Levy (EGL), on "phenomenal" invoices from the production of wholesale power. The levy, which came into effect on January 1, 2023, and will remain in place until March 31, 2028, is similar to Corporation Tax in its administration.
The EGL aims to address the current energy market conditions, with the levy being applied to companies producing over 50 GWh annually of power in the UK and connected to the national transmission network or local distribution networks. This includes nuclear, green (including biomass), and energy from waste generators, but not revenues from storage.
Taxpayers subject to the EGL are advised to ensure their systems, plans, and procedures for calculating and paying the levy are ready for the upcoming introduction. Special rules will apply to JVs and companies with significant minority investors. The levy will be self-assessed in business income tax returns and amounts will be due and payable in alignment with Company Tax.
The benchmark cost for electricity generation has been set at GBP 75 per MWh and will remain in effect until April 2024, after which it will be adjusted according to the Consumer Prices Index. However, the levy will only apply to outstanding invoices exceeding £10 million in an audit period.
Payments for the EGL will not be required until the Spring Finance Bill in which the EGL is enacted laws obtains Royal Assent. HMRC will provide further support on the interpretation and application of the EGL legislation in early 2023.
The EGL is likely to have an impact on the UK's emerging clean hydrogen market. The potential creation of an incentive for long-term sustainable power supply arrangements for hydrogen projects to be priced at or below the benchmark cost could influence the growth of the clean hydrogen sector. However, it's important to note that direct, detailed search results regarding the EGL's specific impact on the hydrogen and renewable energy markets, project economics, legislative risks in long-term contracts, or effects on the emerging clean hydrogen sector are currently limited.
It's worth mentioning that the UK is not the only country in Europe effectively enforcing windfall taxes on clean power generators. A political agreement was reached at the September 2022 Energy Council on a Council Regulation on an emergency intervention to address high energy prices, which requires all EU Member States to establish a necessary cap on revenues of inframarginal power producers exceeding EUR180/MWh.
The draft legislation includes provisions to combat avoidance strategies aimed at reducing or avoiding the levy or the effects of the regulations. The EGL will not be tax-deductible from corporate tax, and it does not apply to "advanced storage technologies such as hydrogen."
For large companies with a December year end, the first quarterly instalment payment that includes an EGL repayment is anticipated to be on 14 July 2023. The levy will not apply to "phenomenal generation receipts," which are not explicitly defined in the text. The EGL technological note includes a list of allowed costs, such as enhanced costs of generation gas, earnings sharing for access to sites, and the costs of redeeming power from the grid.
In sum, while the specific analytical assessment of the EGL's impact on UK hydrogen and renewables is not found in the current search, such levies generally influence project economics through increased cost burdens and regulatory risk under long-term contracts, potentially slowing development unless offset by supportive policies or contract mechanisms. The clean hydrogen market's growth depends on mitigating such risks to secure investment and competitiveness.
- The EGL, a levy introduced by the UK Government, will impact businesses in the energy industry, particularly those producing over 50 GWh annually of power, as it will be self-assessed in business income tax returns and amounts will be due and payable in alignment with Company Tax.
- The levy, applied to companies connected to the national transmission network or local distribution networks, includes nuclear, green (including biomass), and energy from waste generators, and it's worth noting that the UK is not the only country in Europe effectively enforcing similar levies on clean power generators.
