(Bloomberg) – The UK is seeking to close a loophole that allows taxpayer-backed wind farms to take advantage of soaring market prices when selling electricity to the grid.
The government plans to stop wind turbines from delaying the start of their fixed-price contracts as prices rise, according to people familiar with the matter. This delay means they can charge electricity at market prices and then keep the profits instead of reimbursing the treasury. It’s part of a wider effort in the UK to understand how to muffle the impact of soaring electricity prices on UK consumers. A consultation will be launched this summer.
This tactic has prompted Treasury Secretary Rishi Sunak to consider how to tax windfall profits from the power sector. The planned consultation comes as the Treasury withdraws from a one-off electricity tax plan, according to a person with knowledge of the matter. People asked not to be identified because the government’s plans are not public.
Britain has built the largest fleet of offshore wind farms outside China based on a system known as contracts for difference. The government grants wind operators fixed prices to sell electricity for 15 years.
If the market price is lower than the contract price, the government subsidizes the difference. But if the market is higher, the wind farms return money to the government.
Until recently, the mechanism acted only as a grant. But with electricity prices soaring, existing wind farms have for the first time repaid money to the treasury. So far this year, offshore wind farms have paid more than 40 million pounds ($48.3 million) to Low Carbon Contracts Co. Ltd., which runs the scheme.
High electricity prices mean wind farms are paying the UK government
But some newly built wind farms delayed the activation of their contracts so that they could sell electricity at higher market prices. The government wants to find a way to prevent this from continuing.
Any changes you make probably won’t have an impact for years. The government wants to close the loophole in the next auction round scheduled for 2023. This means that the measure will not affect existing contracts or those to be signed in the current auction round, the results of which must be published next week.
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