Shares in energy firms initially slumped on Thursday after Chancellor Jeremy Hunt outlined new windfall taxes in his Autumn Statement, but prices quickly recovered.
Hunt confirmed that the energy industry windfall tax will rise to 35% from 25% from 1 January 2023 until March 2028. This was widely expected.
He also announced the introduction of a temporary 45% levy on electricity generators. There had been reports of a 40% tax on excess profits.
The measures are expected to raise £14bn next year.
The news sent shares into the red, with electricity generator Drax, British Gas owner Centrica and SSE all falling after the announcement.
The stocks were quick to bounce back, however. At 1250 GMT, Drax was up 2.4% at 583.50p, while Centrica was 3.3% higher at 89.84 and SSE was 0.3% firmer at 1,649.50p.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said energy firm share prices retreated rapidly “as it became clear that the Treasury will scoop up more money which has been falling into their profit baskets as gas prices soared”.
“There will be concern this may lead to lower investment into renewables but given the clamour for acceleration companies could be hit by ethical investor headwinds if funding of greener cleaner projects is scaled back at a time when large dividends are still paid out.”
Streeter said that for the government, there is a risk that energy prices will continue to fall back, “which will limit what can be creamed off”.