UK HMRC has published draft legislation for the introduction of a new tax on exceptional electricity generation receipts of qualifying generating undertakings from 1 January 2023 to 31 March 2028, the Electricity Generator Levy. The policy paper published with the legislation describes the levy as follows:

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Electricity Generator Levy on exceptional electricity generation receipts

Who is likely to be affected

Companies and groups of companies that undertake electricity generation in the UK and are connected to either the National Grid or local distribution networks and equivalent networks in Northern Ireland.

General description of the measure

The Electrical Generator Levy will be a temporary 45% charge on exceptional receipts generated from the production of wholesale electricity. Exceptional receipts will be defined as wholesale electricity sold at an average price in excess of £75 per MWh over an accounting period. The levy will be limited to generators whose in-scope generation output of electricity exceeds 50GWh across a period of a year. The levy will only apply to exceptional receipts exceeding £10 million in an accounting period. Some generators within scope of the levy have seen certain costs increase in line with the wholesale price of electricity. This is often in the form of fuel costs or revenue-sharing agreements with third parties. The levy will allow for the deduction of a limited set of exceptional costs when calculating generators’ liability.

More detail can be found in the updated technical note.

The levy will be in effect from 1 January 2023 until 31 March 2028, and will apply to pro-rated profits for accounting periods between those dates. The levy will be administered via the Corporation Tax system and paid by the responsible company in a group of companies.

The levy will not apply to electricity generated under a Contract for Difference with the Low Carbon Contracts Company Ltd (LCCC) and will not apply to electricity which has been generated outside of the UK and been imported.

The levy will be applied to companies or groups generating electricity from nuclear, renewable, biomass, and energy from waste sources.

Policy objective

The government announced the Electricity Generator Levy in the Autumn Statement 2022 in response to exceptional revenues being realised in some parts of the electricity market.