Rachel Reeves has tightened the squeeze on renewable energy generators, raising the windfall tax on wind and solar producers from 45 per cent to 55 per cent in a move the Chancellor insists will stop the sector “cashing in” on the latest Middle East oil and gas shock.
The increase to the electricity generators levy (EGL), announced on Tuesday, has been timed to land alongside a sweeping set of power market reforms from Ed Miliband, the Energy Secretary, designed to “break the link” between volatile gas prices and the cost of electricity paid by households and businesses.
For Britain’s small and medium-sized employers, still nursing the scars of the 2022 energy crisis, the stakes could scarcely be higher. Industry figures, however, have been quick to brand the package a “sham”, warning it risks locking consumers and businesses into higher bills for decades and chilling the investment climate for renewables just as ministers are trying to court record capital inflows.
Under the existing system, many wind and solar farms still sell power on the wholesale market while drawing a top-up subsidy through the legacy renewables obligation (RO) scheme. The Treasury’s new design offers a carrot alongside the stick: generators who voluntarily switch to fixed-price contracts for difference (CfDs) will be exempt from the higher levy.
Ministers argue this will decouple renewables revenues from wholesale electricity prices, which are still set by the most expensive marginal plant on the system — almost invariably gas. Under the current merit-order pricing, even when the vast majority of power is coming from wind or solar, all generators are paid the gas-set price whenever a gas plant is called on.
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