Policy paper

New Clause 5: Electricity generator levy: new investment exemption

Published 29 January 2024

Summary

1. New Clause 5 introduces an exemption from the electricity generator levy for generation receipts from new generating plant, which meets the new investment condition. The exemption will apply to generation receipts that can be attributed to new or additional generation capacity, or where substantially all of the plant in an existing station is replaced.

2. The new investment condition is that on 21 November 2023 there is a significant likelihood of a project consisting of qualifying new generating plant not going ahead.

Details of the clause

3. Subsections (1) and (2) introduce the exemption of qualifying new generating plant. Where the exemption applies, the effect is to treat any capacity resulting from a project as not being generation of a relevant generating station, as defined in section 280(1) Finance (No, 2) Act 2023.

4. For a new generating station, the exemption will apply to the whole of the generation receipts from that station. For an existing station, only receipts attributable on a fair and reasonable basis to the additional capacity are covered by the exemption. The attribution in that case is to be made in accordance with section 283 Finance (No.2) Act 2023.

5. Subsection (3) introduces new section 311A of the Finance (No2) Act 2023 which explains the key concepts used to define the exemption of qualifying new generating plant. It also sets outs the conditions that must be met for new generating plant to qualify for the exemption.

6. Subsection (1) of new section 311A explains that qualifying new generating plant must be commissioned as part of a qualifying project which meets the new investment condition.

7. Subsection (2) of new section 311A sets out when the new investment condition is met. This is where, as of 21 November 2023, there is a significant likelihood of a project consisting of qualifying new generating plant not going ahead. “A significant likelihood of the project not proceeding” in this context indicates that at the specified date there is a more than a small, negligible or fanciful risk that the project to create the qualifying new generating plant will not proceed.

8. Subsection (3) of new section 311A provides a power for the Treasury to determine that a class of qualifying project(s) is to be treated as meeting the new investment condition should this be needed.

9. Subsection (4) of new section 311A defines a ‘qualifying project’ as a project to commission a new generating station, an existing generating station where substantially the whole of the existing generating plant is replaced, or a project that leads to an increase in generating capacity of an existing generating station.

10. Subsections (5) and (6) of new section 311A provides that where a project leads to an increase in capacity of an existing generating station only generation receipts that can attributed to the additional capacity will be exempted from the electricity generator levy. An attribution under these circumstances is to be made on a fair and reasonable basis in accordance with the provisions of section 283 of the Finance (No2) Act 2023.

11. Subsection (4) of the clause amends section 311 of the Finance (No.2) Act 2023 to includes qualifying new generation plant amongst the definitions table for that Part.

Background note

12. The new investment exemption introduced by this clause was announced at the Autumn Statement 2023. The electricity generator levy is a 45% charge on exceptional amount of generation receipts on incorporated businesses that generate electricity in the UK. It is in effect until 31 March 2028. The exemption from the levy will apply to generation receipts arising from new generating plant as part of a qualifying project which meets the new investment condition on 21 November 2023.