New cap on renewable energy revenue not a windfall tax, says Rees-Mogg

The announcement on Tuesday that the Government would introduce a “cost-plus revenue limit” prompted accusations the move amounted to a windfall tax.

12 October 2022

Jacob Rees-Mogg has denied that Government plans for a cap on the revenues of renewable energy generators and nuclear power plants amount to a windfall tax.

The announcement on Tuesday that the Government would introduce a “cost-plus revenue limit” prompted immediate accusations that it was attempting to smuggle in a windfall tax by the back door.

While little detail has been released so far, the Government said it would try to break the link between high gas prices and the amount made by electricity producers.

The Government said that as gas prices have soared over the last year, many of Britain’s wind farms and solar farms were paid a lot more than normal for their products, even though their costs had not increased very much.

Liz Truss had previously set out her opposition to a new windfall tax on energy companies.

Labour was among those claiming that the move shows the Government had now accepted the logic of a windfall tax, but that charge was forcefully denied by the Business and Energy Secretary on Wednesday.

He told BBC Radio 4’s Today programme: “This is simply mischaracterising what’s being done, and misunderstands how the market works.”

Calling it a “technical subject”, he said the Government has intervened over the gas price.

“What this is doing is rationalising the market in a way that energy companies have been in favour,” he said.

“The Government has already intervened to affect the gas price. It started at the retail rather than the wholesale level.

“Had it done it at the wholesale level, it would have affected these contracts in a similar way.

“Therefore, this is just a rationalisation of the position. It is not a windfall tax, it’s clearly not a tax. It’s nothing to do with the profits these companies are making.”

Gwynt y Mor offshore wind farm
Labour have said the Government plan shows that it has accepted in principle the idea of a windfall tax (Ben Birchall/PA)

Labour’s shadow climate change secretary Ed Miliband said: “After months of telling the country they were utterly opposed to the principle of a windfall tax, they have been dragged kicking and screaming to implement it.

He told the Today programme: “I’m afraid the problem about bad government – and we have bad government – is that they don’t just make mistakes, they do the wrong thing. And when they do the right thing, they don’t do it in the right way.”

The Government has so far not said whether cheaper gas generators and coal power plants, which also benefited from the current set-up, would be impacted by the new rules.

“The precise mechanics of the temporary cost-plus revenue limit will be subject to a consultation to be launched shortly,” the Department for Business, Energy and Industrial Strategy said.

Officials and ministers have been working closely with the industry on the details, and the proposal would come into force at the start of next year.

Labour Party Conference 2022
Labour’s shadow climate change secretary Ed Miliband criticised the government over its plans (Peter Byrne/PA)

It would come into force in England and Wales, while the Government in London said it was consulting with its counterpart in Edinburgh to see if it should extend to Scotland. The legislation would also allow the rules to be extended to Northern Ireland.

Some of the UK’s wind and solar farms are already paying back their excess profits.

Wind farms and other generation built under the Contracts for Different scheme, which launched more than half a decade ago, return money to customers when prices are high.

The Government and industry have also backed plans for older wind and solar farms to move onto these kinds of contracts.

It comes weeks after the Government announced a cap which limits household energy bills to 34p per unit of electricity and 10.3p for each unit of gas they use.

It is also the latest move targeting renewables taken by the current Government amid reports it was considering clamping down on solar farms built on land which could be used for farming.

Energy sector leaders called for more details from the Government as some warned that the cap needs to be set at a level that does not put off investors.

Dhara Vyas, Energy UK’s director of advocacy said they welcomed the proposed cap as “much-needed support” for millions of households and businesses.

“However, we must be sure that the proposed mechanism does not risk the very investment the UK needs to ensure long-term, sustainable economic growth,” she said.

Dan McGrail, chief executive of RenewableUK, warned that the move risks “skewing investment towards the fossil fuels that have caused this energy crisis”.

“We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK,” he said.

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