EGL22300 - Relevant generating stations: excluded technologies
Power stations generating electricity primarily from the burning of oil (including diesel oil), coal or natural gas are excluded from the definition of a relevant generating station. The UK has very few remaining oil or coal-fired power stations of any significant size, which generally do not operate on a regular basis but are retained primarily for use in times of risks to the security of supply at a national level. Gas fired stations do, in 2023, supply a very significant part of the UK generating capacity, but have been the most impacted by the geo-political events of the time that have affected both the international market price of gas and electricity and the uncertainty in supplies of gas. Gas powered stations typically set the marginal price for wholesale electricity and applying the levy to gas could then increase the marginal price. It is primarily the potentially distortive effects on security of power supply to the domestic market that has led the Government to determine that it is not appropriate to include them within scope of the EGL
Pumped hydro storage stations
The EGL has a specific exclusion from the definition of a relevant generating station for stations that mainly generate from turbines driven by water that is pumped into storage to create a hydrostatic head of water. This type of station will be a net consumer of electricity but relies on the differential price of power between peak and non-peak times to generate revenues, ensuring that excess capacity in the system at times of low demand can be stored and released at times of high demand. These stations are capable of generating a high output but only for a short time and play an important part in the Balancing Mechanism. This special role means that they have not benefited from the general increase in electricity prices in the same way as other generators. Hydro-electric stations that generate primarily from naturally filled reservoirs or flowing rivers are relevant generating stations.
Battery storage
Battery facilities are a growing feature in the UK energy landscape. Renewable generation from wind and solar power is intermittent, depending on metrological conditions and batteries may be used to store generation until it is needed to meet demand from the grid. These facilities may be integrated with a wind or solar generation station or be used to store electricity imported from the grid. A facility may perform both functions in what is known as a “hybrid” generating station.
The mere storage and release of generated electricity in a battery is not considered generation for the purposes of the EGL, see the definition of “generation” in F(2)A23/S312(1)(a).
- Where battery storage is integrated with generation, effectively storing generated electricity until it is exported to the grid then this is part and parcel of the generation activity.
- Where battery storage imports electricity from the grid that is exported later, then that is not generation activity for EGL purposes.
- Where the activities in the bullets above are combined in a hybrid facility then an apportionment must be made. There may be no definitive answer to how that should be done but approaches that HMRC would consider appropriate is set out in the guidance section below.
Hybrid generating stations – with co-located battery storage
Hybrid generating stations that also export power that they have not generated to the grid, for instance a hybrid site using renewable generation and battery storage, will need to determine the exceptional generation receipts arising in respect of their attributable generation on a fair and reasonable basis. One straightforward method that is likely to produce an outcome that meets that requirement would be to attribute the computed exceptional generation receipts between generated and imported electricity on a consistent formulaic basis such as that described below.
The undertaking will in general need to:
• Determine the amount of metered output that relates to generation as compared to output that relates to power imported, stored and exported.
• Separately determine the amount of receipts of the group that are attributable to that generated output
An alternative approach based on what is likely to be a fair and reasonable attribution of generating undertaking’s generation receipts might be to calculate what would be the overall exceptional generation receipts (the gross receipts) for the hybrid asset then apportion the amount chargeable to the EGL based on the following factors –
- The facility’s average daily generation value in MWh “X”
- The facility’s effective storage capacity in MWh “Y”
The amount of exceptional generation receipts chargeable to the EGL would then be –
- X / (X + Y) x gross receipts
This means that a large generation asset with modest storage, would treat the majority of revenues as generation receipts. A small generation asset with large storage would treat a smaller proportion of revenues as generation receipts.