Wind farms in UK waters will pay a higher windfall tax than the oil and gas rigs operating nearby as the Government said it would levy an extra 45% charge on their profits.
Chancellor Jeremy Hunt said he would increase the oil and gas windfall tax from 25% to 35% from the start of next year, but he also plans to introduce a brand-new windfall tax on electricity generators.
He hopes the taxes can raise around £14 billion for the Treasury between them next year.
“I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy prices,” he told the Commons on Thursday.
“But any such tax should be temporary, not deter investment and recognise the cyclical nature of many energy businesses.”
He added: “The structure of our energy market also creates windfall profits for low-carbon electricity generation.”
Many older wind farms and gas-firing power plants have been benefiting from historically high energy prices.
Gas prices have soared around the world, and the price of electricity in Britain is largely decided by how expensive gas is.
Most new wind farms across the UK are built under so-called Contracts for Difference – which gives them a guaranteed price for each unit of electricity they produce.
But these generators are also forced to pay back anything more that they get above that guaranteed price – they have, therefore, not gained any windfall profits from recent price rises.
Speculation about a potential windfall tax had sparked warnings from renewable energy companies that investment in the sector could dry up as a result.
“Cheap, low carbon, reliable energy must sit at the heart of any modern economy,” Mr Hunt said.
“But Putin’s weaponisation of international gas prices has helped drive up the cost of our national energy consumption.
“This year we will be spending an extra £150 billion on energy compared to pre-pandemic levels, equivalent to paying for an entire second NHS through our energy bills.”
He added: “Over the long term, there is only one way to stop ourselves being at the mercy of international gas prices: energy independence combined with energy efficiency.
“Energy independence, so neither Putin or anyone else can use energy to blackmail us, and energy efficiency to reduce demand and climate impact as much as possible.”
Enjoy the convenience of having The Sunday Post delivered as a digital ePaper straight to your smartphone, tablet or computer.
Subscribe for only £5.49 a month and enjoy all the benefits of the printed paper as a digital replica.Subscribe