Shares in electricity generators tumbled on Tuesday after it emerged that chancellor Rishi Sunak was considering imposing a windfall tax on excess profits.
According to the Financial Times, the Treasury is drawing up plans that would widen any possible windfall tax beyond oil and gas producers to cover electricity generators as well, including wind farm operators.
The newspaper quoted an unnamed government insider, who said: “North Sea oil and gas producers are only half the picture. The other half is that high gas prices have led to some pretty substantial windfall profits for all electricity generation.”
The Treasury has yet to comment.
As at 1030 BST, SSE was down 10% at 1,723.0p, Drax had tumbled 17% to 671.5p and British Gas-owner Centrica was off 11% at 79.38p.
Citi cut its recommendations on SSE and Drax, lowering SSE to ‘neutral’ from ‘buy’, and Drax to ‘sell’ from ‘neutral’.
International operators who supply the UK were also affected, with EDF off 3%, E.ON down 3% and Spain’s Iberdrola, the owner of Scottish Power, trading 2% lower.
Energy companies have made record profits this year on the back of soaring wholesale oil and gas prices, while household energy bills surged by 54% in April. Labour first called for a windfall tax to help with the growing cost of living crisis, but was defeated in the House of Commons after the government voted against the motion.
However, calls for a tax have remained, and the government now looks more open to the idea. Sunak said earlier this month that he was “pragmatic” and warned that if oil and gas producers did not quickly reinvest excess profits, then “no option is off the table”. Sunak has previously opposed a windfall tax.
Russ Mould, investor director at AJ Bell, said: “The government wants to raise money to help households hit by a sharp rise in energy bills. While it is right that some support should be given to those most in need during these difficult times, the way in which new funds are raised means the government runs the risk that energy companies slow down investment in new green projects, which could make it harder for the country to hit its net zero emissions targets.”
Labour has claimed that a windfall tax on North Sea oil and gas producers would raise around £2bn, while Greenpeace believes producers will make windfall profits of around £11.6bn this year.
The FT said that the government believes electricity producers could have made excess profits of more than £10bn because of higher gas prices.