Shares of UK power companies slide on fears of tax losses

Shares in some of Britain’s biggest power companies fell sharply on Wednesday on fears that the government would tax power generation companies as well as oil and gas.

Shares in Drax, owner of the UK’s largest power plant, were down 16%, Centrica down 10% and SSE down nearly 9% in this morning’s London trading on Tuesday.

The sell-off took place after Financial Times revealed UK Prime Minister Rishi Sunak has ordered officials to expand the scope of a potential wind tax, which could raise billions of dollars, to help households with soaring costs of living.

The Treasury Department has considered levying a tax on the profits of North Sea producers, including BP and Shell, which reported bumper profits due to high oil and gas prices last year. But officials have also been asked to consider including other companies in the energy supply chain as domestic energy bills have skyrocketed.

Analysts warn that a potential wind tax on generators would hit several major energy companies, including Spain’s ScottishPower, France’s EDF Energy and Germany’s RWE, all of which both have significant power generation assets in the UK, including wind farms, solar and nuclear projects. tree.

A broader wind tax would also include smaller owners of projects that benefit from an initial subsidy scheme to encourage low-carbon power plant construction, which is believed to be has benefited greatly from high wholesale electricity prices.

However, Investec energy analyst Martin Young has warned that imposing tariffs on generators could “jeopardize the necessary investment” in low-carbon assets needed to meet the targets. government’s renewable energy targets and to achieve the UK’s net zero ambitions by 2050.

He added that ministers should “be careful what [they] hope that”.

Deepa Venkateswaran, an analyst at Bernstein, says many of the larger renewable energy companies have signed long-term contracts to sell their output at negotiated prices and have therefore failed to profit from the selling price of electricity. highest merchant.

Oil and gas producers on Tuesday hit their hardest to fight a wind tax on their industry. Linda Cook, chief executive officer of Harbor Energy, the largest North Sea oil and gas producer, told a conference in Aberdeen that “there is no doubt that the imposition of additional tariffs will be detrimental to levels of investment in the energy sector, for our domestic. energy security and our industry’s ability to further the country’s energy transition ambitions”.

However, oil and gas executives have quietly resigned because of the potential for tariffs to go upwind. “We may be in a situation where it is inevitable,” said one executive with knowledge of the situation.

Oil and gas companies are pushing Treasury and Downing Street to ensure that any taxes collected will be applied according to “known mechanisms” – for example, by raising an additional 10% fee on top of their profits . In 2011, then-Tory Prime Minister George Osborne increased the extra fee to 32% from 20% at the time.

“Tax rates go up and down erratically. Ideally there would be no income tax but we could have passed that point,” added the executive.

Dan Alchin, Energy UK’s regulatory director, says generators have invested billions of dollars to help transform the country’s energy system and are “ready to provide billions more to help the country achieve climate change goals”.

“We need to be careful of any action that could inadvertently jeopardize the path to energy security, zero net and reliable cheap electricity,” he said.

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