The UK Energy Industry Is On Edge About A Potential Profit Cap

Energy executives in the UK are worried about the impact that a profit cap proposed by the government would have on their operations, especially with regard to investor attraction.

The UK government proposed a measure similar to the EU’s windfall profit tax on energy utilities that do not use gas for power generation, only it has called it a “cost-plus revenue limit”. Again, it is aimed at electricity producers that do not use natural gas for their operations, namely, wind, solar, and nuclear power utilities.

An undesired side effect of this profit cap, however, could take the form of discouraging investors to invest in low-carbon energy, some have warned.

Energy UK, the energy industry association, welcomed the move but noted the government should make sure it has no adverse impacts on the industry.

The director of advocacy for Energy UK, Dhara Vyas, for instance, said that the profit cap was “much-needed support”, but added that “However, we must be sure that the proposed mechanism does not risk the very investment the UK needs to ensure long-term, sustainable economic growth.”

The chief executive of RenewableUK, for his part, warned that the profit cap on low-carbon energy generators risked shifting investments to “the fossil fuels that have caused this energy crisis”.

There is also the issue of competition with the EU when it comes to attracting low-carbon energy investments, with some advising the government to make sure it sets the profit cap at such a level as to make the UK a more attractive investment destination than the EU.

The EU and the UK both had to resort to profit and revenue caps in response to soaring electricity prices as the governments had few other tools for dealing with them. With millions of taxpayers facing energy poverty because of the energy crunch, governments had to act quickly and, more importantly, find money quickly to give to people as energy aid.

Profit caps for energy generators that have been benefiting financially from the price rally turned out to be the most obvious choice.

By Irina Slav for Oilprice.com

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