Electricity Generator Levy: new investment exemption
Published 18 December 2023
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This publication is available at https://www.gov.uk/government/publications/introduction-of-a-new-investment-exemption-for-the-electricity-generator-levy/electricity-generator-levy-new-investment-exemption
Who is likely to be affected
Companies and groups of companies that are yet to take a substantive decision to invest in electricity generating stations that would be subject to the Electricity Generator Levy (EGL).
General description of the measure
The government will exempt from the EGL receipts from electricity generation from new generating stations where the substantive decision to proceed with the project was taken on or after 22 November 2023.
More detail can be found in the technical note published at Autumn Statement 2023.
There will be no change to the scope of the levy for existing, or recently commissioned operations. However, a project that results in an increase in the generating capacity of an existing station will be treated as a separate station for the purpose of the exemption, provided the substantive decision to proceed with the project was made on or after 22 November 2023.
Legislation will be brought forward in an upcoming Finance Bill.
Policy objective
An exemption for receipts from new investments in electricity generating stations will strengthen the incentives for renewable energy generators to expand which will protect the UK’s energy security and promote the adoption of more renewable energy production.
Background to the measure
In response to European and UK wholesale gas prices reaching record highs in 2022, resulting in exceptional receipts being realised in some parts of the electricity market, the government announced the EGL in the Autumn Statement 2022. After consulting on the draft legislation, the EGL was legislated in Finance (No. 2) Act 2023, and has effect for electricity generated by in-scope generators from 1 January 2023 until 31 March 2028.
This exemption for receipts from new generating stations was announced at Autumn Statement 2023 and applies from 22 November 2023, meaning receipts from new stations will not be subject to the EGL. Receipts of existing stations will continue to be liable until 31 March 2028.
Detailed proposal
Operative date
The exemption will apply to receipts generated by any new electricity generating stations for which the substantive decision to proceed was a taken on or after 22 November 2023.
Current law
Current law is contained in Part 5 Finance (No.2) Act 2023.
The levy is payable by qualifying companies that earn exceptional revenues from the generation of electricity in the UK. Where companies are members of a group the levy is payable by the responsible company.
The levy is payable by in scope companies or groups which generate over 50GWh per year. Exceptional revenue is 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 is calculated as 45% of the group or company’s calculated revenue above the benchmark that exceed an annual allowance of £10 million.
Proposed revisions
Receipts from new electricity generating stations will be exempt from the EGL where the substantive decision to proceed with the project is taken on or after 22 November 2023. We expect taxpayers to be able to recognise when they have taken the substantive decision to proceed, which will depend on the facts.
The exemption will apply to projects that result in:
- a new generating station, or
- an increase in the generating capacity of an existing generation station
The additional capacity of an existing station will then be treated as that of a separate generating station to which the exemption will apply.
There will be no changes to the treatment of generation that is subject to a contract for difference, which is not subject to the levy.
Summary of impacts
Exchequer impact (£million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Nil | Nil | -5 | -40 | -85 | -20 |
These figures are set out in table 5.1 of Autumn Statement 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2023.
Economic impact
This measure is not expected to have any significant 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. On this basis, there is not expected to be any impact on family formation, stability or breakdown.
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 is expected to have a negligible impact on the administrative burdens of fewer than 55 businesses that may decide to invest in new electricity generating stations on or after 22 November 2023 by reducing to nil the amount of the levy charged on receipts from those stations. One-off costs will arise from familiarisation with the new exclusion. There are not expected to be any continuing costs. Customer experience is expected to improve because the levy will not affect investment decisions for these new stations.
This measure is not expected to impact on civil society organisations.
Operational impact (£million) (HMRC or other)
HMRC does not anticipate additional operational costs to implement this exemption to the levy.
Other impacts
The impact of the exemption should incentivise investment in clean energy.
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
Gareth Davies MP, the 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.