UK power company shares slide over fears of windfall tax

Shares of some of Britain’s biggest power companies fell sharply on Wednesday on fears the government could hit power generators as well as oil and gas companies with a windfall tax.

Shares of Drax, owner of Britain’s biggest power station, fell 16%, Centrica 10% and SSE nearly 9% in morning trading in London on Tuesday.

The sale came after the Financial Times revealed that UK Chancellor Rishi Sunak had ordered authorities to widen the scope of a potential windfall tax, which could raise billions to help households cope with the coronavirus crisis. soaring cost of living.

The Treasury was already considering imposing a tax on the profits of North Sea producers, including BP and Shell, which reported windfall profits due to high oil and gas prices last year. But officials have also been urged to consider including other companies in the energy supply chain as national energy bills have soared.

Analysts have warned that a possible one-off levy on power producers would hit several major energy companies, including Spain’s ScottishPower, France’s EDF Energy and Germany’s RWE, all of which have significant power generation assets. in the UK, including wind farms, solar projects and nuclear facilities. plants.

A broader windfall tax would also include small project owners who benefited from an early subsidy program to encourage the construction of low-carbon energy generation, who would have benefited greatly from wholesale prices. high electricity.

Investec energy analyst Martin Young, however, warned that a windfall tax on power generators could “undermine much-needed investment” in low-carbon assets needed to meet government targets for energy efficiency. renewables and to achieve the UK’s net zero ambition by 2050.

He added that ministers should be “paying attention to what [they] to wish”.

Deepa Venkateswaran, an analyst at Bernstein, said many large renewable energy companies had entered into long-term contracts to sell their output at a negotiated price and therefore had not taken advantage of the lowest wholesale electricity prices. students.

Oil and gas producers on Tuesday launched their strongest attack yet against a windfall tax on their industry. Linda Cook, chief executive of Harbor Energy, the North Sea’s largest oil and gas producer, told a conference in Aberdeen that “there is no doubt that the imposition of additional taxes would be detrimental to the levels of investment in the energy sector, to our national economy”. energy security and the ability of our sector to support the country’s energy transition ambitions”.

However, oil and gas executives are privately resigned to the likelihood of a windfall tax being imposed. “We’re probably in the situation where it’s unavoidable,” said an executive familiar with the situation.

Oil and gas companies are pushing the Treasury and Downing Street to ensure that any windfall tax imposed will be administered using “known mechanisms” – for example by increasing the additional 10% charge on their profits. In 2011, then Conservative Chancellor George Osborne increased the additional charge to 32%, from 20% at the time.

“Tax rates go up and down. The ideal is that there is no exceptional tax, but we have probably passed this stage, ”added the executive.

Dan Alchin, regulatory director at Energy UK, said the generators had invested billions to help transform the country’s energy system and were “ready to provide billions more to help the country achieve its change goals. climatic”.

“We must be careful of any action that may inadvertently jeopardize the path to energy security, net zero and reliable low-cost electricity,” he said.