Britain’s power generators will face pressure from ministers to invest their “extraordinary profits” in new green energy projects, rather than paying shareholders a windfall.
Some have made huge profits from higher electricity prices that have risen in line with the rising cost of gas, even if the power they produce comes from renewables or nuclear power.
Chancellor Nazim Al-Zahawi, Thursday, will keep alive the possibility of hitting generators with an unexpected new tax if they do not invest their profits in renewable energy projects.
“It’s one of a handful of options,” said one of Zahawi’s ally. The chancellor instructed officials to draw up a list of policy alternatives for who would become the leader of the Conservative Party and thus Prime Minister of the United Kingdom on 5 September.
Chancellor and Business Minister Kwasi Kwarting will meet with generators including Centrica, Drax and RWE to discuss the energy crisis, including the sharp jump in home bills.
The meeting follows warnings of a bleak winter for consumers, with annual gas and electricity bills expected to average £4,420 by spring – more than triple the level at the start of this year.
While the government announced support of around £15 billion, including a one-time payment of £400 per household, the measures were revealed when bills were expected to reach around £2,800 by October, well below current forecasts.
Pressure is growing for more action to help families as soaring energy costs risk tipping the broader economy into recession.
“The government is in a state of complete collapse,” said one industry figure familiar with the planned talks.
“There is a degree of panic. They are looking at everything and everything on the table.”
No decisions are expected until Liz Truss or Rishi Sunak is elected leader by members of the Conservative Party next month, prompting accusations that the government is sleepwalking into crisis.
Front Runner Truss has dismissed the idea of additional unexpected taxes on energy companies, saying last month it would “send the wrong message” to the world.
And Quarting, who is likely to be an adviser in the Truss government, is also opposed to windfall taxes, which he says are an investment deterrent.
Former chancellor Sunak first proposed a potential £3-4 billion tax on electricity generators, along with the new £5 billion tax on oil and gas producers in the North Sea.
But the Treasury’s work on the idea was halted due to technical problems with the introduction of the new tax. Sunak’s allies declined to say whether he still favored more windfall taxes on the sector.
Kwarteng has instead focused on reforming the energy market so that electricity prices more accurately reflect the cost of production.
But these reforms, which require legislation, won’t take effect before winter, raising the possibility that electric companies will generate massive surplus profits at a time when energy bills are soaring.
So ministers will ask generators to draw up their investment plans and what they can do to help consumers, as well as discuss their potential earnings and how to distribute them to shareholders.
“The government continues to assess the extraordinary profits seen in certain parts of the electricity generation sector and the appropriate and proportionate steps that must be taken,” a government spokesman said.
Talks are expected to explore the impact of lowering green fees and value-added tax from existing bills and plans to increase the discount for warm homes. The government is also likely to check the energy companies’ plans if a large number of customers refuse to pay their bills this winter.
Companies with large generation capacity, such as France’s EDF – which owns the UK’s remaining nuclear power plants – delivered stronger-than-expected revenues without a significant increase in generation costs.
The French state, which already owns 84 percent of the company, is in the process of fully nationalizing EDF and has asked the company to keep increases in French electricity bills to just 4 percent this year.
Centrica, which owns British Gas, also enjoyed stronger profits, in part due to its 20 per cent stake in Britain’s nuclear fleet.