Windfall Tax – What does this mean for Renewables?

Last week, the Chancellor announced a windfall tax on oil and gas corporations to help people in the UK cope with the rising cost of living.  

The new charge is expected to collect roughly £5 billion in revenue, which will go toward funding the government’s energy assistance package, which includes a £400 energy bill discount for all British households.  

Energy corporations will now face an additional 25% tax on high earnings, on top of the 40% they now pay. 

However, companies that reinvest their earnings in British oil and gas exploration will get 90% of the new tax back in relief, according to Mr Sunak.  

The tax offset only applies to investment in the oil and gas sector, meaning companies will receive no tax relief for investment in renewables. 

It implies that fossil fuel corporations investing in more oil and gas exploration in the UK will save 91p for every £1 invested. 

This comes as Energy Bills are at an all-time high for households across the UK, with the energy price cap being raised at an average of almost £600 annually. This is all due to rising wholesale gas prices, impacting families across the world.   

To calculate your current energy bill visit here.   

What does this mean for renewables? 

Experts have said that future investment in renewables should not suffer because they would be exempt from any windfall tax because projects are now auctioned with a fixed price for the power they ultimately produce, making it impossible for companies to make excessive profits if electricity prices rise. 

However, climate activists have cautioned that the windfall tax is only a “sticking plaster” designed to give temporary comfort from high energy prices while actually encouraging further oil and gas extraction.  

The tax, according to Greenpeace UK, would increase the UK’s reliance on fossil fuels rather than encouraging a shift to renewable energy. 

This is because instead of driving money into clean energy solutions, companies will be much more inclined to re-invest in profits in British oil and gas exploration.  

Boris Johnson, the Prime Minister, has previously opposed a windfall tax, claiming that it would discourage investment in renewable energy in the UK.  

However, BP, the world’s largest oil company, has stated that a charge would not prevent it from making any of its planned UK investments.