Windfall Tax On Energy Companies (Too Darn Right!)

Recently, the media has been in a frenzy over the UK government's plan to issue a windfall tax on the renewable sector, but the UK government is indeed right to do so.

Why is the media foaming at the mouth, why does the green energy sector deserve to be taxed, and what challenges does the renewable energy industry face?

Proposed Windfall Tax On Energy Companies (Media Foaming At The Mouth)

Since the mini-budget was announced by the UK government that included tax cuts, reduced spending, and other drastic changes in fiscal policy, the pound has seen a dramatic fall in value, interest rates have gone up, and investors are starting to panic.

To try and calm the situation, the government has stepped back on some of its taxing decisions including the proposed reduction in higher-rate tax from 45% to 40%, and the bank of England has stepped in and purchased billions of pounds of bonds in an attempt to stabilise the economy. 

Of course, all of this garnered large amounts of media attention with some praising the tax cuts while others denounced the disproportionate tax savings that the rich will receive (despite being net contributors to the tax system). But when the UK government announced that it would be introducing a windfall tax on the renewable energies sector, the media just about lost its mind. 

The recent energy crises across Europe as a result of COVID, poor market decisions, and the Ukraine war is pushing energy prices to all-time highs. The restricted gas supplies are seeing countries across Europe moving to build up reserves to minimise the effects of a cold winter. At the same time, some governments are even considering country-wide blackouts and energy rationing to ensure that, at the very least, there is enough gas to heat homes. 

When considering that green energy is the supposed solution to future energy that both reduces CO2 emissions and eliminates the need for fuel, taxing green energy not only harms future funding but also prevents its integration. Furthermore, it is widely believed that fossil fuel companies are the ones that should face a windfall tax as they are making obscene profits from the rising costs of fuel. Thus, what the government is doing is clearly an act against green energy in an attempt to line the pockets of their friends with dirty fossil fuels…right?

Renewable Energy In UK (More Profits Than Anyone Else)

Unfortunately, there exists an extremely uncomfortable truth within the renewable industry that arguably makes it far more immoral than fossil fuels. Primarily, the price of oil and gas comes down to demand and supply; if there is low demand and large supply then it falls in price, and if the demand is high and supply is low it then rises in price. Currently, the war in Ukraine has prevented the sale of Russian oil and gas, and OPECs refusal to increase production has further limited the supply. Thus, the price of oil and gas has gone up, and this means that those in the oil industry must also increase their prices. Additionally, electricity derived from gas has also gone up substantially.

However, renewable energies are outright unaffected by current oil and gas prices, and this means that during such market turmoil, the cost of electricity they provide doesn’t change. But in the UK, renewable energy sources have also been increasing the price of their electricity at the same rate as oil and gas energy sources despite facing no increase in cost. Thus, renewable energies are making obscene profits from the current crises.

At the same time, renewable energy installations frequently receive substantial government grants meaning that helps to reduce the cost of their installation. Thus, renewable energy sources have not only been increasing their profits unfairly, but they have done so at the cost of the taxpayer. 

Finally, those supporting renewables have constantly touted the benefits of renewable energy with one claim being that they are cheaper than fossil fuels. And yet, despite the UK using a large number of wind farms, the price of energy has increased disproportionately. So, environmentally clean energy sources are reaping massive amounts of profit while pointing their finger at fossil fuel for the cause of the challenges in the cost of living.

A quick calculation dictates that if gas makes up 50% of the energy, 20% is nuclear, and 30% is wind, then an increased price of gas by 3x should see an increase in energy bills by 60%, not 300%. Now, if all energy sources triple their price, then it makes perfect sense for an increase in 300%.

UK Renewable Energy Companies (Challenges Ahead)

Despite the many promises made by renewable energy, there are still numerous challenges that need to be solved. By far the most important is the need for energy storage so that renewable energies can be more reliable. Currently, UK renewable energy sources (primarily wind and solar) can only deliver power whenever it is available, and if this energy isn’t around, then other sources such as gas and oil have to make up for the fall in energy production.

Energy storage technologies are being developed, but most of these technologies are unsuitable for widespread adoption. Lithium-ion batteries are far too expensive and dangerous to use on grid scales, pumped hydro requires vast amounts of land and can present a major flood risk, and molten salt is still yet to be scaled up. 

Renewable energies also need to address their cost claims as it is clearly untrue that they are cheaper to run compared to fossil fuels. If this was truly the case, then companies would solely switch to renewable energies. For example, it is often claimed that solar is cheaper than coal, but in reality, it is far easier to build a single coal plant on a small plot of land compared to using thousands of acres for the equivalent solar farm. 

Overall, the renewable energy sector in the UK has a lot to answer for with its unfair profiteering while pretending to be a cheaper alternative. At the same time, renewable energy solutions need to focus more on energy storage as until the energy they generate can be stored, they are ineffective for energy impendence.