Energy UK questions preferential treatment for oil and gas over low carbon energy

Energy UK has criticised proposals to impose a revenue cap on low carbon generators,
highlighting its threat to the investment needed to safeguard the country’s energy security,
reduce its dependence on expensive gas and cut customer bills.
The proposals are contained in the Energy Prices Bill, which is currently going through
Parliament and will be further debated in the House of Lords today. Although the primary
purpose of the Bill is to quickly enable the support being provided for domestic and business
customers this winter through the Energy Price Guarantee and Energy Bill Relief Scheme, it
also contains proposals for a revenue cap for generators and open ended Ministerial powers
over the industry.
Leading energy companies have already written to the Government calling for the Bill to be
amended so that it focuses on the measures that are needed urgently, while leaving time for
other proposals to be scrutinised properly.
In a briefing document published today, Energy UK describes the revenue cap proposal as a
“de facto windfall tax” but one that threatens to be more damaging and punitive than that levied
on oil and gas producers. In particular, while the windfall tax for oil and gas producers contains
generous exemptions through an investment allowance, no such provision exists with the
revenue cap.
The briefing points out that the oil and gas investment allowance will divert up to £25 billion
away from tax and into new UK fossil fuel extraction annually. If the same investment
allowance offered to oil and gas companies were given to low carbon generators, it would
facilitate investment equivalent to that needed to deliver an extra 9GW of offshore wind
annually. This would produce enough electricity to power 7 million homes and potentially
deliver annual savings of £7 billion to customers.
Energy UK is also stressing the importance of setting the revenue cap at a fair level that meets
reasonable investor expectations and has parity with any equivalent European Union
mechanism – or risk investors shunning the UK. It also calls on the Government to consult
properly about the proposals given their widespread and long-lasting consequences, and to
actively pursue voluntary Contracts for Difference (CfDs) as a medium-term mechanism that
could bring down bills and maintain investor confidence at a time of market disruption.

2 of 2

Energy UK’s Deputy Director, Adam Berman said:
“While we fully support the need to do whatever it takes to help with bills this winter, the
Government’s revenue cap as currently designed could have catastrophic consequences for
the investment needed to reach our climate and energy security targets.
“At time of uncertainty and economic disruption, this plan risks derailing the very investment
needed to reduce our reliance on volatile and expensive fossil fuels that are the root cause of
the energy crisis.
“It’s astonishing that the Government has proposed a scheme that would penalise
investment in clean, cheap, low carbon generation in favour of polluting oil and gas
extraction. Cementing a tax regime that gives preferential treatment to oil and gas would
send a disastrous message about the UK’s commitment to the low carbon solutions that offer
the quickest way out of the energy crisis, cost of living crisis, and climate crisis.
“We’re urging the Government to reconsider the design of a scheme that could end up
diverting investment away from the homegrown low carbon generation that could ensure our
energy security will never again be called into question”.