RWE warns UK tax on electricity generators would risk £15bn investment in renewables

The head of RWE has warned that Germany’s biggest utility will reconsider £15bn of investment it plans to make in the UK’s renewable energy sector if the country imposes a windfall tax on electricity generators.

RWE is one of the UK’s largest power producers, supplying about 15 per cent of the country’s electricity through assets such as gas-fired plants and wind farms.

But its chief executive Markus Krebber warned a windfall tax on electricity generators’ profits would force a rethink of investments planned in areas such as offshore wind.

“With the current [fiscal] framework our commitment is to invest £15bn in the UK until the end of this decade,” Krebber told the Financial Times. “[That is] net investment from RWE, it will be higher with our partners and if things change we reconsider.”

He added: “If the environment changes — and part of that is of course the regulatory framework and political decisions — everybody would reconsider.”

Several leading investment groups including Newton Investment Management and Baillie Gifford have also cautioned that a windfall tax on the electricity sector would be “short-sighted” and put a brake on the rollout of renewable energy technologies in the UK just as the government wants to bolster domestic electricity supplies.

Chancellor Rishi Sunak in May hit out at electricity generators for making “extraordinary profits” due to high power prices. He said the Treasury was examining “appropriate steps” to ensure the sector contributed to a £15bn support package for households facing soaring energy bills. Sunak has already imposed a 25 per cent “energy profits levy” on UK oil and gas producers.

Paul Flood, a portfolio manager at Newton Investment Management, which has invested just under £1bn in renewables in Britain, said his group would “think very carefully about our current holdings in the UK” if Sunak imposed additional taxes on generators.

American colleagues at Newton had already cancelled “significant” investments in UK renewable companies because of uncertainty about the regulatory regime, Flood added.

Nicoleta Dumitru, a multi-asset investment manager at Baillie Gifford, whose holdings include a 5 per cent stake in renewable investment trust Greencoat UK Wind, said a windfall tax would “potentially slow down the pace of renewable deployment in the UK”. “It would be a real shame to see a windfall tax chip away at the attractiveness [of the UK market],” Dumitru said.

Jim Wright, fund manager at Premier Miton Investors, which invests in groups such as RWE and SSE through its global infrastructure fund, warned that many other countries were trying to attract investment in renewables as governments sought to reduce their reliance on Russian gas.

“The increase in the perceived risk of UK investment increases the likelihood that other jurisdictions will prevail in attracting capital,” Wright said.

The Treasury said it recognised that any steps taken following its evaluation of electricity generators’ profits needed “to be proportionate and avoid creating undue distortion or impacts on UK investment”.

Billions of pounds have been wiped off the value of London-listed electricity companies such as SSE, Drax and Centrica since the Financial Times first reported in May that Sunak planned to extend a windfall tax to the sector.

However, the companies’ share prices ended the week higher as government officials privately signalled to energy executives that the industry was too “complex” and they feared an additional levy could “clobber investment”.

RWE’s warning risks a further deterioration in its relations with the UK government. It is one of several energy companies to have angered ministers by delaying the start of a long-term contract for its Triton Knoll wind farm off the Lincolnshire coast — a move that allows it to benefit from higher prices in electricity spot markets.

The joint venture that owns Triton Knoll, of which RWE is the biggest partner, has been making more money for the electricity generated from the third phase of the scheme after it decided to delay the start of the contract by one year. The practice is legal but is considered exploitative by ministers.

Krebber insisted the UK government should look at generators’ profits over a longer period.

“When I look at our investment in the UK of course sometimes you make a bit more money but we also had periods where we didn’t make literally any money on our asset base in the UK,” he said.