Electricity Generator Levy
Published 15 March 2023
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Who is likely to be affected
Companies and groups of companies that undertake electricity generation in the UK and are connected to either the national grid or local distribution networks and equivalent networks in Northern Ireland.
General description of the measure
The Electricity Generator Levy will be a temporary 45% charge on exceptional receipts generated from the production of wholesale electricity. Exceptional receipts will be defined as amounts from wholesale electricity sold at an average price in excess of a benchmark price of £75/MWh over an accounting period. This benchmark price will be adjusted in line with the Consumer Price Index from April 2024.
The levy will be limited to generators whose in-scope generation output of electricity exceeds 50GWh across a period of a year. The levy will only apply to exceptional receipts exceeding £10 million in an accounting period.
Some generators within scope of the levy have seen certain costs increase in line with the wholesale price of electricity. This is often in the form of fuel costs or revenue-sharing agreements with third parties. The levy will allow for the deduction of a limited set of exceptional costs when calculating generators’ liability.
A technical note was published in December 2022 with more detail on the policy.
The levy will be in effect from 1 January 2023 until 31 March 2028 and will apply to pro-rated exceptional receipts from generation during accounting periods between those dates. The levy will be administered via the Corporation Tax system and paid by the responsible company in a group of companies.
The levy will not apply to electricity generated under a Contract for Difference with the Low Carbon Contracts Company Ltd, nor under any future arrangement for nuclear generation under the Regulated Asset Base model. Nor will it apply to electricity which has been generated outside of the UK and been imported.
The levy will be applied to companies or groups generating electricity from nuclear, renewable, biomass, and energy from waste sources.
Policy objective
The government announced the Electricity Generator Levy in the Autumn Statement 2022 in response to exceptional revenues being realised in some parts of the electricity market.
Background to the measure
European and UK wholesale gas prices have recently reached record highs. This is driven by global factors, including resurgent demand for energy post COVID-19 and Russia’s invasion of Ukraine and weaponisation of gas supplies.
On 26 May 2022,the Chancellor announced a package of targeted measures to help support households and businesses with the rising costs of living, including a cap on the amount charged for electricity.
One effect of the rise in global electricity prices has been that many UK generators of electricity have received vastly increased revenues for their power because, for structural reasons, the price of electricity is tied to the price of natural gas. Those electricity generators have realised revenues well in excess of normal commercial returns. It is these exceptional revenues that the Electricity Generator Levy will apply to.
Detailed proposal
Operative date
The levy will apply from 1 January 2023 to the exceptional element of revenue arising from electricity generated by qualifying companies or groups of companies generated in pro-rated periods from that date. The levy will cease on 31 March 2028.
Current law
This is a new levy therefore there is no current law, however it will be administered under the existing Corporation Tax system.
Proposed revisions
The levy will be payable by qualifying companies that earn revenues from the generation of electricity in the UK. Where companies are members of a group the levy will be payable by a responsible company.
The levy will be payable by in-scope companies or groups that generate over 50GWh per year. Exceptional revenue will be calculated as the group’s revenue from wholesaling electricity that exceeds £75/MWh (adjusted in line with CPI from April 2024) over an accounting period, recognising specified exceptional costs in limited circumstances. The calculation of exceptional receipts will take account of the impact of financial hedging arrangements for market risk of the group’s power output.
The levy will be calculated as 45% of the group or company’s calculated exceptional revenue above an annual allowance of £10 million.
There are special arrangements to ensure that joint venture and group companies with minority investors are appropriately subject to the levy.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| -65 | -265 | -285 | -330 | -325 | -180 |
The table above shows the Exchequer impact of the changes to the Electricity Generator Levy since Autumn Statement 2022, including the recognition of specified exceptional costs for the acquisition of generation fuel and feedstock and indexation of the benchmark price. These figures are set out in Table 4.1 of Spring Budget 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.
The Exchequer impact of the Electricity Generator Levy as announced at Autumn Statement 2022 are set out in in Table 5.1 of Autumn Statement 2022 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2022.
Economic impact
This measure is likely to have limited macroeconomic impacts.
Impact on individuals, households and families
There are not expected to be any direct impacts on individuals as this measure only affects businesses. Wholesale electricity prices are tied to the price of gas and the levy is unlikely to affect the retail price of electricity for households.
Equalities impacts
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
This measure will have a negligible impact on the administrative burdens of an estimated 50 groups that earn revenues from significant UK generation output. Impacted businesses will pay the new levy, subject to qualification and the £10 million allowance. Businesses will need to consider the impact of the levy for future investment decisions and timing, although the levy itself is time limited as set out above under ‘Detailed proposal’.
One-off costs could include familiarisation with the levy, which will be reported and paid through the Corporation Tax system.
Continuing costs could include calculating allowable costs, relevant revenues above the benchmark, and applying the allowance. Administration costs are expected to be minimal, as the levy is accounted for via the Corporation Tax system.
This measure is not expected to impact civil society organisations.
Customer experience impacts
This measure is expected overall to have no impact on business’ experience of dealing with HMRC because it does not change any processes or tax admin obligations.
Operational impact (£m) (HMRC or other)
HMRC will incur additional operational costs estimated at £6.5m to implement this new levy which includes changes to IT systems and extra compliance staff.
Other impacts
Environmental impacts have been considered in the design of the levy. While low-carbon electricity generation is subject to the levy, the impact on generators’ incentive to generate and invest in clean energy has been mitigated by setting the benchmark price at a level which is high by historic standards and allowing them to retain a significant proportion of their exceptional returns. Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from companies’ Corporation Tax returns (including Electricity Generator Levy liability).
The EGL is a temporary measure. There is considerable uncertainty around forecasts of wholesale electricity prices in the coming years. Should the crisis abate and realised prices fall below the benchmark price, the revenue from the levy set out in the forecast will not materialise and consideration would be given to the tax’s ongoing application.
Further advice
If you have any questions about this change, please contact HMRC by email: [email protected]