With electricity prices soaring, the public may have little sympathy for the bosses of power generators bemoaning their lot. In many cases, their firms have seen profits rocket alongside prices as their underlying costs remained fixed. And yet the executives of seven wind companies have recently written to the Chancellor warning that the Government is crippling their industry.
They are right to do so. Britain’s energy policy is a dysfunctional and often contradictory mess. We seem intent on throwing up barriers to fresh investment at every turn. This would be unhelpful at the best of times – but during a cost of living crisis, when crippling energy bills are forcing many families and businesses to the brink, it’s downright inexcusable.
The wind bosses’ complaints centre largely on the UK’s puzzling approach to energy taxation. Last year the government introduced two windfall taxes. In May, the Energy Profits Levy on oil and gas producers applied a 25 per cent surcharge to their profits (since raised to 35 per cent). Then, during November’s Autumn Statement, Jeremy Hunt introduced the Generator Profits Levy – a 45 per cent charge on “exceptional receipts” of £10million or more made on electricity sold at over £75 per megawatt hour.
The consequences of doing so are now coming home to roost. We should not be surprised that companies are thinking twice about deploying capital into new projects when the government has shown it will rob them of any profits that result.
Electricity generators are particularly hard hit. While oil and gas producers can benefit from reliefs on investment, these are not available to developers of clean energy infrastructure. When the government is insisting on heat pumps and green electricity, this policy is clearly absurd. The inequality in reliefs should be corrected.
But taxation is far from the only thing holding back investment in energy. Arguably an even bigger impediment to getting projects off the ground is Britain’s notoriously sclerotic planning system. Whether it’s building solar farms or wind turbines, energy developers are being hamstrung by a mountain of red-tape and paperwork – all of which drives up eventual costs. It can take up to 13 years to get an offshore wind farm up and running, of which only three might be spent actually constructing it. A single objection can stop an onshore wind turbine in its tracks. Instead of paying lawyers and other pen pushers to fill out forms and navigate bureaucracy, we need to radically simplify the planning permission process.
Many in the energy sector also point to the UK becoming a less attractive place in which to invest, following US President Biden’s decision to make £306 billion in green investments available over the next ten years. The Government can do a lot, but it probably can’t compete with that. Instead, it should aim to tempt companies to invest by making it as easy as possible to get projects underway.
We are in the depths of an energy shortage, and only we can get ourselves out of it. The imperative of generating significantly more electricity must be at the forefront of government thinking. Obstacles – whether fiscal or regulatory – need to be hauled out of the way. If investors and developers do not regard the UK as a good place to deploy their capital, we simply will not move forwards. Bills will remain high, and the economy sclerotic.
Eamonn Ives is the Head of Research at The Entrepreneurs Network, and a former government climate policy adviser