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Energy UK questions preferential treatment for oil and gas over low carbon energy

Energy UK has criticised proposals to impose a revenue cap on low carbon generators, highlighting its threat to the investment needed to safeguard the country’s energy security, reduce its dependence on expensive gas and cut customer bills.

The proposals are contained in the Energy Prices Bill, which is currently going through Parliament and will be further debated in the House of Lords today. Although the primary purpose of the Bill is to quickly enable the support being provided for domestic and business customers this winter through the Energy Price Guarantee and Energy Bill Relief Scheme, it also contains proposals for a revenue cap for generators and open ended Ministerial powers over the industry.

Leading energy companies have already written to the Government calling for the Bill to be amended so that it focuses on the measures that are needed urgently, while leaving time for other proposals to be scrutinised properly.

In a briefing document published yesterday, Energy UK describes the revenue cap proposal as a “de facto windfall tax” but one that threatens to be more damaging and punitive than that levied on oil and gas producers. In particular, while the windfall tax for oil and gas producers contains generous exemptions through an investment allowance, no such provision exists with the revenue cap.  

The briefing points out that the oil and gas investment allowance will divert up to £25 billion away from tax and into new UK fossil fuel extraction annually. If the same investment allowance offered to oil and gas companies were given to low carbon generators, it would facilitate investment equivalent to that needed to deliver an extra 9GW of offshore wind annually. This would produce enough electricity to power 7 million homes and potentially deliver annual savings of £7 billion to customers.

Energy UK is also stressing the importance of setting the revenue cap at a fair level that meets reasonable investor expectations and has parity with any equivalent European Union mechanism – or risk investors shunning the UK. It also calls on the Government to consult properly about the proposals given their widespread and long-lasting consequences, and to actively pursue voluntary Contracts for Difference (CfDs) as a medium-term mechanism that could bring down bills and maintain investor confidence at a time of market disruption.


Energy UK’s Deputy Director, Adam Berman said:

“While we fully support the need to do whatever it takes to help with bills this winter, the Government’s revenue cap as currently designed could have catastrophic consequences for the investment needed to reach our climate and energy security targets.

“At time of uncertainty and economic disruption, this plan risks derailing the very investment needed to reduce our reliance on volatile and expensive fossil fuels that are the root cause of the energy crisis.

“It’s astonishing that the Government has proposed a scheme that would penalise investment in clean, cheap, low carbon generation in favour of polluting oil and gas extraction. Cementing a tax regime that gives preferential treatment to oil and gas would send a disastrous message about the UK’s commitment to the low carbon solutions that offer the quickest way out of the energy crisis, cost of living crisis, and climate crisis.   

“We’re urging the Government to reconsider the design of a scheme that could end up diverting investment away from the homegrown low carbon generation that could ensure our energy security will never again be called into question”.   



About Energy UK

Energy UK is the trade association for the energy industry with over 100 members – from established FTSE 100 companies right through to new, growing suppliers, generators and service providers across energy, transport, heat and technology. We represent the majority of the energy sector – excluding networks and upstream oil and gas. Our members deliver nearly 80% of the UK’s power generation and over 95% of the energy supply for 28 million UK homes as well as businesses. The sector invests £13bn annually and delivers nearly £30bn in gross value – on top of the nearly £100bn in economic activity through its supply chain and interaction with other sectors – and supports over 700,000 jobs in every corner of the country. The energy industry is key to delivering growth and plans to invest £100bn over the course of this decade in new energy sources.