Chancellor Rachel Reeves is expected to raise the windfall tax on low-carbon electricity generators, according to sources. The levy, introduced in 2022, targets excess profits from older renewable and nuclear plants after energy prices soared following Russia's invasion of Ukraine.
Reeves may announce the increase as early as Tuesday, alongside a consultation on long-term reforms to weaken the link between gas prices and electricity costs. Currently, the wholesale price is set by the most expensive source, typically gas, leading to higher bills in gas-reliant countries like the UK.
The government aims to use additional revenue from the generator levy to shield household bills in the short term. The levy applies to nuclear, biomass, and pre-2017 renewable projects, taxing revenues above £75 per megawatt hour at 45%. It is due to expire in March 2028.
Industry shares fell after Reeves indicated a 'quite big change' was under consideration. SSE dropped over 6%, Centrica fell 5%, and Drax lost 3% on Friday. The conflict in the Middle East has pushed electricity prices above £100/MWh, raising fears of further increases.
Proposals include shifting older low-carbon projects to fixed-price contracts, similar to those for new projects. Analysts suggest this could save £4bn to £10bn annually. Another idea involves removing gas plants from the wholesale market and holding them in strategic reserve, potentially cutting £80 from annual bills.
