As of 1 January 2023, certain UK electricity generators will be subject to the ‘Electricity Generator Levy’ (EGL), which is a temporary 45% tax charged on 'extraordinary returns' from low-carbon UK power generation.


The UK Government recently announced that the EGL will apply in addition to corporation tax and, subject to electricity generators meeting particular conditions, will be in force until March 2028.

Criteria

The EGL applies to corporate groups or standalone companies (where relevant) that generate electricity in the UK using nuclear, renewable or biomass sources. Due to rising gas prices, which impact the price of electricity, they are currently benefitting from a significant increase in revenue for their output without a related increase in generation costs. We don't yet know whether 'biomass' will include an energy from waste plant. We do know that pumped storage hydroelectricity and battery storage are expressly excluded, as are any plants that have a Contract for Difference.

The EGL is only triggered if an electricity generator's in-scope generation output exceeds 100GWh per year in a qualifying period.

The EGL will also be designed to cover electricity generated through joint venture (JVs) structures but how it will be applied is still under consideration. The question is whether or not the EGL should be applied to corporate JVs in the same way as it applies to other corporate groups, or if more bespoke rules for JVs are necessary.

'Extraordinary returns' will be defined as the aggregate revenue that generators make in a qualifying period from in-scope generation on a measure of 'Exceptional Generation Receipts' exceeding £75.00 per MWh and will only then apply to returns over £10 million per group.

Calculation

Exceptional Generation Receipts will be calculated as follows:

Generation Receipts – Electricity Generation x Benchmark Price – Allowance

  • Generation Receipts = total receipts of a group from in scope UK electricity generation;
  • Electricity Generation = electricity generated in the UK from in scope generation in Megawatt-hours (MWh);
  • Benchmark Price = £75.00 per MWh*; and
  • Allowance = £10m per annum per group.

*The Benchmark Price represents the average price above which generator returns are considered to be exceptional so any portion of generators’ earnings below this level will not be subject to the EGL.

What's Next?

Whilst we await the draft legislation being published by HM Treasury and HMRC in mid-December, these proposals leave some questions unanswered for certain electricity generators and it will be interesting to see how the draft legislation deals with them.

For more information, the UK Government has published both an energy taxes factsheet (click here) and a technical note (available here). The technical note details that HM Treasury and HMRC will be corresponding with relevant generators to discuss how this legislation will implement the above proposals, as well as providing contact details for those that are potentially within the scope of the levy and want to discuss further.

If you have any questions on these new proposals, please do get in contact with us or your usual AG contact.

Key contacts

Meet the team
Stewart Gordon

Stewart Gordon

Managing Associate, Infrastructure, Projects & Energy
Glasgow

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Suzanne Moir

Suzanne Moir

Partner, Infrastructure, Projects and Energy
Edinburgh

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Paul Dight

Paul Dight

Partner, Energy and Utilities
United Kingdom

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Richard Goodfellow

Richard Goodfellow

Head of IPE and Co-head of Energy and Utilities
United Kingdom

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