Electricity Generator Levy (EGL) update 

As detailed in our coverage of the Autumn Statement (here) and our Infrastructure newsletter (here), the EGL is a temporary 45% windfall tax on exceptional generation receipts realised by corporate groups or stand-alone companies who generate electricity in the UK, its territorial waters or a Renewable Energy Zone (as defined in the Energy Act 2004). The EGL brings the headline rate of tax to 70% on such receipts.

As currently drafted, exceptional generation receipts are receipts above £10 million from the sale of electricity above a benchmark price (currently £75 £/MWh) of generators with in-scope output exceeding a generation threshold of 50 GWh across the qualifying period (adjusted pro rata for periods of less than 12 months). It only applies to groups or stand-alone companies who (a) generate electricity from nuclear and renewable (including biomass) sources or energy from waste, and (b) who are connected either to the UK national transmission network or to local distribution networks. There are also exclusions for generators that operate under contracts for difference and investment contracts (as defined in the Energy Act 2013), or where it is in receipt of feed-in tariff export payments.

There have been a number of key updates to the EGL since it was first announced in the November 2022 technical note, those of interest include:

• The generation threshold has been lowered from 100 GWh to 50 GWh, bringing more groups and stand-alone companies within scope of the EGL. The rationale for this decrease is "to reduce the risk that generators exceed the £10m allowance on 100 GWh of generation" which could disincentivise generation around this threshold.
  
  
• Following various consultations with generators, the Treasury has decided to index the benchmark price of £75 per MWh to the consumer prices index from April 2024. Note that no other value (including the £10m allowance) will be indexed, meaning the real cost of the EGL will increase over its life.
  
  
• A narrow list of allowable costs can be deducted, relating to exceptional fuel costs and revenue sharing arrangements. The draft legislation suggests that additional allowable costs may be introduced in the future.
  
  
• The draft legislation provides a much-needed definition of "group" and details of how the EGL will be apportioned among its members. There is also further information on the allocation of revenues to JVs, minority shareholders and partnerships.
  
  
• The EGL will apply to electricity generated from waste but will not apply to electricity generated and used under a private wire arrangement, or “behind the meter” generation which is not exported. The EGL will also not apply to electricity which has been generated outside the UK and imported.

The EGL will be in effect from 1 January 2023 until 31 March 2028. It is expected that the final legislation will be made available in the spring Finance Bill.

If you would like further information in relation to the EGL and how it will impact your business, please contact Madeline Gowlett or another member of the Travers Smith Tax team.