Advertisement
Canada markets closed
  • S&P/TSX

    22,167.03
    +59.95 (+0.27%)
     
  • S&P 500

    5,254.35
    +5.86 (+0.11%)
     
  • DOW

    39,807.37
    +47.29 (+0.12%)
     
  • CAD/USD

    0.7379
    -0.0007 (-0.10%)
     
  • CRUDE OIL

    83.11
    -0.06 (-0.07%)
     
  • Bitcoin CAD

    95,359.20
    +940.83 (+1.00%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,254.80
    +16.40 (+0.73%)
     
  • RUSSELL 2000

    2,124.55
    +10.20 (+0.48%)
     
  • 10-Yr Bond

    4.2060
    +0.0100 (+0.24%)
     
  • NASDAQ

    16,379.46
    -20.06 (-0.12%)
     
  • VOLATILITY

    13.01
    +0.23 (+1.80%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • NIKKEI 225

    40,351.16
    +183.09 (+0.46%)
     
  • CAD/EUR

    0.6845
    +0.0002 (+0.03%)
     

Energy industry faces ‘death by a thousand cuts’, warns major power supplier to Britain

Prime Minister Rishi Sunak and newly appointed Secretary of State for Energy Security and Net Zero, Grant Shapps - Jamie Lorriman/Pool via REUTERS
Prime Minister Rishi Sunak and newly appointed Secretary of State for Energy Security and Net Zero, Grant Shapps - Jamie Lorriman/Pool via REUTERS

Britain’s energy industry risks “death by a thousand cuts” as tax raids, red tape and a constant "flip-flopping" on policy deter investment, the head of one of Britain's biggest power producers has warned.

Tom Glover, the UK boss of RWE, said Jeremy Hunt's windfall tax and the lack of a clear growth strategy had put the company's UK investment plans at risk.

In an interview with The Telegraph, Mr Glover warned that £12bn of RWE's original £15bn investment plans by 2030 was now "up for grabs".

It comes after the Chancellor’s decision to extend a windfall tax to electricity generators in the Autumn Statement, which Mr Glover said is "overhanging the market".

ADVERTISEMENT

RWE is the second biggest power generator in the UK and provides around 15pc of all the country’s electricity needs. It has set out major plans for investment in UK offshore wind.

However, Mr Glover said the constant threat of policy and tax interventions had stymied investment and threatened to push up energy bills. Other markets such as the US and Asia are now "looking more attractive", he added.

America's Inflation Reduction Act has already triggered a flood of investment by companies that will benefit from huge subsidies and tax breaks for green energy projects.

RWE is the latest energy company to warn about the threat to investment in the UK as a result of policy uncertainty and greater competition from abroad.

Five energy trade associations wrote to the Chancellor this month to express concern that there is "no clear government plan to deliver green economic growth".

Shell has also said it is reviewing £25bn of investment it had earmarked for the UK.

Only £3bn of RWE's £15bn British investment plans have reached a final investment decision (FID), where contracts are signed and big orders made.

"The remaining £12bn is up for grabs, if you like," said Mr Glover. "So when we say it's allocated in our business plans, it can be reallocated at any point in time. And every financial investment has to make sense when we make it."

The Chancellor increased a so-called Energy Profits Levy on oil and gas giants in the Autumn Statement and introduced a similar tax on electricity generators until 2028. While Mr Glover said he had received assurances from Mr Hunt that the tax would end as planned in 2028, he noted that Mr Hunt could not "bind future chancellors or future governments".

"There's always a risk that once you've introduced it, in future they either extend it or make it worse, so it overhangs the market and once governments get that tax revenue in, it's not clear to us that they won’t like it a lot and just continue it," he said.

Uncertainty over tax and energy policy risked pushing up household bills, he warned.

"If investments are more uncertain and more risky... either the investment doesn't happen, or investors charge more," said Mr Glover. "If we are stuck with the risk of tax, risk of policy intervention, then clearly when I go for my investment decision, my owners RWE will require a higher return. And if they require a return, ultimately the customer pays.”

Slow connections to the UK's power grid have also delayed all of RWE's projects by "between two to five years", he said, threatening some of the UK's renewable energy goals.

The German energy giant produces enough electricity in the UK to power 10m homes, ranging from onshore and offshore wind farms to gas-fired power plants, biomass and hydropower stations.

Mr Glover stressed that RWE remained committed to the UK, adding that the company did not plan to shift its investment plans in the short term.

"[The UK] is still an attractive place to invest [but] we're seeing other markets looking more attractive, and it's not yet clear that the Government is going to take the actions required,” he said. "Once it gets reallocated, it's too late."

Energy bosses across the sector have threatened to pull back UK investment because of the Chancellor's tax raid. Anders Opedal, chief executive of the Norwegian oil and gas company Equinor told The Telegraph that governments had to “incentivise future investments for the energy that is needed to ensure that the energy prices in the future will be at the right level”.

Mr Opedal added: “We always say - stable conditions for taxes will give the best investment environment going forward. It's up to the government to decide on the tax level.”

A Government spokesman said: “The Energy Profits Levy strikes a balance between funding significant cost of living support for families and businesses, while encouraging investment into the North Sea to bolster the UK’s energy security.

“We want to encourage reinvestment of the sector’s profits to support the economy, jobs, and our energy security, which is why the more investment a firm makes into the UK, the less tax they will pay.

“In 2022 alone, around £23 billion of new investment was committed in the UK across low carbon sectors – including renewables, hydrogen, carbon capture and storage, nuclear, sustainable materials, energy storage, electrified transport and heat.”


Interview: ‘The UK is becoming a relatively less attractive place to invest’

by Szu Ping Chan and Rachel Millard

RWE UK boss Tom Glover - Andre Laaks, RWE
RWE UK boss Tom Glover - Andre Laaks, RWE

Tom Glover used to be in charge of keeping RWE’s power stations piled high with coal. “Aberthaw [in Wales] took a very specific, anthracite coal,” he recalls, rolled in from the Tower Colliery deep in the South Wales Valleys.

But coal-fired power stations have had to close, and Glover, now UK country chair for the German energy giant, is focused on building the wind turbines and hydrogen plants that will take their place.

Frankfurt-listed RWE is one of the UK’s biggest energy investors, generating about 15pc of the country’s electricity from a fleet of gas, biomass and hydropower stations and wind turbines.

About one-third of its capital is allocated to the UK, where it plans to invest £15bn by 2030, mostly in offshore wind, lured by the gusty coastal areas and government support which have long made the UK a top destination for clean energy investors.

But Glover warns the UK is at risk of losing its lustre.

In the US, President Joe Biden’s Inflation Reduction Act is luring green energy investors with $216bn (£178bn) of tax breaks, while the EU is hitting back with better state aid of its own.

The UK market is ripe with subsidies for the shift to green energy, which is supported by both Labour and the Tories.

But investors have been spooked by recent changes such as a windfall tax on energy firms, looming reform to the electricity market, and what Glover describes as the "flip-flopping" on policy related to onshore wind and solar.

Moreover it can take years to get planning approval for new projects, then several more to get a wind farm connected to the electricity grid, adding to the barriers for those making investment decisions.

All this is adding up to become a potential "nightmare" for the sector, according to Glover, who says the current patchwork system of regulation and tax breaks has left the industry uncertain about where policy is heading next.

“The UK is an attractive place to invest,” he says, but warns: "I think it's becoming relatively less attractive than other places around the globe."

RWE is not alone: Energy trade associations wrote to Jeremy Hunt, the Chancellor, this month, warning that the UK’s ability to attract investment was at “severe risk” without steps such as capital allowances on the windfall tax.

While industry lobbying for tax breaks is nothing new, the awkward truth for the Chancellor is that the UK needs billions of pounds of investment in clean energy to meet its ambitious renewable energy and net zero goals and cut its reliance on gas.

Investors can take their money anywhere in the world. Many of the largest investors in the UK energy system, such as Iberdrola, Macquarie, EDF and RWE, are foreign-owned global players.

Glover says RWE and other energy giants are not against handing more money to the taxman in principle. The 19pc to 25pc corporation tax increase from April has been "known for a while" and factored into the company's models.

But he takes issue with a windfall tax that "overhangs the market", amid concerns it will not be lifted as planned in 2028.

The Electricity Generator Levy was introduced in December to try and tackle the cost-of-living crisis caused by soaring wholesale energy prices, largely a knock-on effect of Russia’s invasion of Ukraine.

"We spoke with the Chancellor and he said it's 'definitely finishing in 2028'. But he can't bind future governments," Glover says.

"It's very difficult for us to think, in 2028, is a government that's got that tax income coming in, are they really going to stop it?"

Meanwhile, inflation is pushing up the costs of wind turbines, while the UK economy is underperforming against its peers.

Britain was singled out by the International Monetary Fund as the only major economy it expects to shrink this year.

The US, Japan, and China are all expected to enjoy steady, if not spectacular, growth.

The UK is set to remain smaller than its pre-pandemic size by the middle of the decade. All the signals suggest Britain is far from open for business.

Of the £15bn RWE plans to invest in the UK only £3bn of that is nailed on with final investment decisions (FID), where construction contracts are signed and major equipment orders put in.

“The remaining £12bn is up for grabs,” Glover says. “It can be reallocated at any point in time. It’s only committed when we actually do an FID. And every FID has to make sense when we make it.”

He and others are waiting to see whether the Government will increase the support it gives to renewable energy projects in the next round of auctions for government contracts guaranteeing their electricity price.

As it stands, government policy risks eroding the business case for several of RWE's UK projects, he warns.

“You have got a great investment environment here in the UK. Why are you starting to risk it for no real reason?”

Markus Krebber, RWE’s chief executive, rubbed shoulders with investors, politicians and rivals from around the world at this year’s World Economic Forum in Davos, where India, China and others jostled for investment.

“I think Markus came back from Davos and said, it was very clear that the US, Middle East and Asia are much more confident economically than the eurozone and the UK,” says Mr Glover.

Sir Keir Starmer and Rachel Reeves were also at Davos last month. The Labour leader took time to meet bankers and energy chiefs from some of the world's biggest companies, including RWE and fellow generator Drax.

Labour has vowed to end investment in new North Sea oil and gas fields, pledging a sixfold increase in offshore wind capacity to 60GW by 2035, and to decarbonise the power sector by 2030.

Glover describes this as "extremely ambitious", implying that delays connecting projects to the grid mean the Tories won't meet a 50GW target by 2030.

But he adds: "It's great that they want to be ambitious, right? Better to shoot for the stars and meet the clouds."

He adds that Labour is very much in listening mode when it comes to business.

"The best thing a business can ask for is engagement and listening. Whether they agree with us or disagree with this is a completely different thing. But their level of engagement at the moment is very good," says Glover.

Glover emphasises that RWE is not at the point where some of that £15bn of UK investment is going to get reallocated. But the clock is ticking.