The head of RWE has warned that Germany’s biggest utility will reconsider the £15bn investment it plans to make in the UK’s renewables sector if the country imposes a one-off tax on generators. ‘electricity.
RWE is one of the UK’s largest electricity generators, supplying around 15% of the country’s electricity through assets such as gas-fired power stations and wind farms.
But its chief executive, Markus Krebber, has warned that a windfall tax on the profits of power producers would force a rethink of planned investments in areas such as offshore wind.
“With the current [fiscal] framework, our commitment is to invest £15 billion in the UK until the end of this decade,” Krebber told the Financial Times. “[That is] net investment of RWE, it will be higher with our partners and if things change, we will reconsider.
He added: “If the environment changes – and part of that is of course the regulatory framework and policy decisions – everyone would reconsider.”
Several leading investment groups, including Newton Investment Management and Baillie Gifford, have also warned that a windfall tax on the electricity sector would be ‘short-sighted’ and stifle the deployment of renewable energy technologies in the Kingdom. United, just as the government wants to boost domestic electricity supply.
In May, Chancellor Rishi Sunak denounced power producers for making “extraordinary profits” due to high electricity prices. He said the Treasury was looking at “appropriate measures” to ensure the sector contributed to a £15billion support package for households facing rising energy bills. Sunak has already imposed a 25% “energy profits tax” on UK oil and gas producers.
Paul Flood, portfolio manager at Newton Investment Management, which has invested just under £1bn in renewables in Britain, said his group would “think very carefully about our current holdings in the UK if Sunak imposed additional taxes on generators.
Newton’s American colleagues had already canceled “significant” investments in British renewable companies due to uncertainty over the regulatory regime, Flood added.
Nicoleta Dumitru, multi-asset investment manager at Baillie Gifford, whose holdings include a 5% stake in revolving investment trust Greencoat UK Wind, said a windfall tax would “potentially slow the pace of deployment of renewables in the UK”. “It would be a real shame to see a tax on the benefits reduce the attractiveness [of the UK market]“, said Dumitru.
Jim Wright, fund manager at Premier Miton Investors, which invests in groups such as RWE and SSE through its global infrastructure fund, warned that many other countries are trying to attract renewable energy investment as that governments were seeking to reduce their dependence on Russian gas.
“The increased perceived risk of investing in the UK increases the likelihood that other jurisdictions will prevail in attracting capital,” Wright said.
The Treasury said it recognized that any action taken following its assessment of power generators’ profits must “be proportionate and avoid creating distortions or undue impacts on UK investment”.
Billions of pounds have been wiped off the value of London-listed power companies such as SSE, Drax and Centrica since the Financial Times first reported in May that Sunak was planning to extend a windfall tax to the sector.
However, corporate stock prices ended the week higher as government officials privately signaled energy executives that the industry was too “complex” and feared an additional levy would “clog investment”.
RWE’s warning risks a further deterioration in its relationship with the UK government. It is one of several energy companies to have angered ministers by delaying the start of a long-term contract for its Triton Knoll wind farm off the Lincolnshire coast – a move that sees it benefit from higher prices high in spot electricity markets.
The joint venture owner of Triton Knoll, of which RWE is the main partner, has won more money for the electricity produced from the third phase of the program after it decided to delay the start of the contract by a year. The practice is legal but is seen as exploitation by ministers.
Krebber insisted that the British government look at producers’ profits over a longer period.
“When I look at our investments in the UK, of course, sometimes you make a little more money, but we’ve also had periods where we literally haven’t made any money on our asset base in the UK. United,” he said.