Electricity Generator Levy on exceptional electricity generation receipts
Published 20 December 2022
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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 Electrical Generator Levy will be a temporary 45% charge on exceptional receipts generated from the production of wholesale electricity. Exceptional receipts will be defined as wholesale electricity sold at an average price in excess of £75 per MWh over an accounting period. 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.
More detail can be found in the updated technical note.
The levy will be in effect from 1 January 2023 until 31 March 2028, and will apply to pro-rated profits for 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 (LCCC) and will not 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 reached record highs this year. This is driven by global factors, including resurgent demand for energy post coronavirus (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 UK generators of electricity have received vastly increased revenues for their supplies because, for structural reasons, the price of electricity is tied to the price of natural gas. Some 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 policy was announced in the Autumn Statement 2022 with the intention of legislating in the Spring Finance Bill 2023. Draft legislation was published on 20 December 2022.
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 the responsible company. The levy will be payable by in scope companies or groups which generate over 50GWh per year. Exceptional revenue will be calculated as the group’s revenue from wholesaling electricity that exceeds £75MWh (as increased by indexation) over an accounting period, recognising specified exceptional costs in limited circumstances. The levy will be calculated as 45% of the group or company’s calculated revenue above the benchmark that exceed an annual allowance of £10 million.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| empty | empty | empty | empty | empty | empty |
The Exchequer impact of the measure, as certified by the Office for Budget Responsibility (OBR), was forecast at Autumn Statement and is included in Table 5.1 of the Autumn Statement 2022 document. An updated costing will be published at the next fiscal event.
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 anticipated that there will be impacts for those groups sharing protected characteristics.
Impact on business including civil society organisations
This measure will have an impact on groups that earn revenues from significant UK generation output. Impacted businesses will pay the new levy, subject to qualification and the £10 million allowance.
One-offs costs will include familiarisation with the levy, which will be reported and paid through the Corporation Tax system.
This measure is expected to have a minimal ongoing administrative impact, as the levy is accounted for through Corporation Tax.
This measure is not expected to impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will incur operational costs to implement this new levy including 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 level which is high by historic standards and allowing them to retain a significant proportion of their extraordinary return. 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).
Further advice
If you have any questions about this change, contact HMRC by email: [email protected].
Declaration
James Cartlidge MP, Exchequer Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.