Real support for renewable energy: draft legislation published for electricity generator levy exemption


3rd January 2024

As part of the Government’s commitment to the phasing out of fossil fuels, introduced by the Energy Act 2023, new legislation has been published to implement the exemption from the electricity generator levy (“EGL”) for exceptional receipts from “qualifying new generating plant” in a move towards investment in renewable energy.

The EGL is one of many reforms to the energy industry, which were discussed by Penny Rinta-Suksi and Keely Doyle in their article on the publication of the Energy Act (found here), and is a temporary 45% charge on exceptional receipts generated from the production of wholesale electricity, and will be in effect from 1 January 2023 until 31 March 2028. The levy was introduced in an effort to curb some of the huge revenues realised by many UK generators as a result of the sharp rise in electricity prices.

The exemption works by excluding any new renewable generation projects that create a new (or increase the capacity of an existing) electricity generation station from the EGL, provided that the substantive decision to proceed is made on or after 22 November 2023. As a result, any expenditure from the new station, or any additional capacity created, will not be subject to the EGL, which could mean huge savings for those businesses investing in renewable energy sources.

The draft legislation has kept the projects that will qualify for this exemption to a minimum (it has been confirmed that this will only apply to approximately 55 businesses in the UK), as only “qualifying new generating plant” will be eligible. Some points to note are:

  • Generating plant is new and qualifying if it is commissioned as part of a qualifying project that meets the investment condition; and
  • A qualifying project is defined as a project to commission new generating plant:
    • for a new generating station or for an existing station (that, as a result of the project, will be wholly or substantially comprised of new generating plant); or
    • that increases the generating capacity of an existing generating station.
  • The investment condition is met if, on 21 November 2023, it was reasonable to conclude, having regard to all of the circumstances, that there was a significant likelihood of the project not proceeding. The technical note published by HMRC to accompany the draft legislation sets out more detail on the investment condition, and can be found here.)

It is not yet clear whether this draft legislation will be included in the next Finance Bill, due for publication in 2024, or in a subsequent bill, but we will be keenly tracking all the way to implementation.

For further support on getting ready for implementation of this exemption, or any of the measures announced by the government as part of the energy reform, please contact our specialist commercial team.

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