Autumn Statement: new investment exemption from Electricity Generator Levy

To encourage continued investment in the UK's renewable energy generation, the Chancellor has announced the introduction of a new exemption from the Electricity Generator Levy (EGL). The measure will exempt revenues from new electricity generating investment projects, where the substantive decision to proceed is taken on or after 22 November 2023.

Background

The EGL came into force on 1 January 2023 as a temporary response to unprecedented energy costs in the UK, with the aim of taxing the exceptional receipts of in-scope generating stations. The 45% charge has been legislated to end on 31 March 2028 (or potentially sooner, should market conditions stabilise). 

New investment exemption

A Technical Note published as part of the Autumn Statement provides an outline of the government's proposals for the new exemption:

• Technologies in scope: include all those currently in scope of the EGL, namely nuclear, renewable and biomass sources.
• New investment projects: will be those resulting in a new generating station or an increase in the generating capacity of an existing generating station. In the latter case, the additional capacity will be treated as a separate station potentially within scope of the exemption. However, it will need to be demonstrated that generation infrastructure has been expanded, not merely that generation output has increased.
• Substantive decision: a 'new investment condition' will determine whether a project was likely to proceed immediately before the new exemption was announced. Objective factors to consider include main board level commitment and release of project funding by major investors.
• Maintenance and life extensions: refurbishment, general repair and replacement of parts will not qualify for exemption, even where this results in increased capacity.
• Repowering projects: where core electricity generating equipment is replaced, with full decommissioning and recommissioning, the station should be within scope of the exemption (provided the previous generating capacity is at least maintained).

Next steps

Legislation to implement the new exemption will be contained in a future Finance Bill (though not the Autumn Finance Bill 2023 due to be published imminently). HMRC has also promised formal guidance on the measure.