Energy Giant Calls for a Windfall Tax – Will the Government Agree?

During the Tory leadership campaign, new Prime Minister Liz Truss vowed that she wouldn’t impose a windfall tax on major energy companies in the UK, in the belief that this would discourage investment from overseas.

However, it appears as though the new PM is perfectly prepared to press head with a desire to cap renewable energy revenues on these shores, creating a de facto windfall tax on wind and solar companies.

This is despite the fact that the UK is now the third most attractive clean energy investment market in the world, with investment in this type of space continuing to grow exponentially year-on-year.

Regardless, the PM’s plans may have been thrown into doubt this week, when the CEO of oil behemoth Shell called for a windfall tax on traditional energy firms to help protect the poorest in society. But is this viable, and will the PM factor this into her plans going forward?

Energy Companies and Their Profits

Certainly, energy companies have seen their earnings rise significantly since Russia’s invasion of Ukraine, as wholesale prices have soared and the global supply has diminished markedly.

At the same time, demand has continued to rise as global Covid lockdowns have been eased, creating a scenario where energy company revenues are increasing but additional costs are largely being passed to consumers.

In the case of Eon, for example, the firm banked profits of £3.4 billion in the first half of 2022, while Chief Executive Leonhard Birnbaum earned a cool £1 million salary last year.

National Grid recorded £3.4 billion-worth of profits through 2021/22, while this firm’s Chief Executive John Pettigrew earned an incredible £6.5 million in pay and bonuses during the same period. This is also excellent news for stock traders, with spread betting and CFDs enabling them to profit as share values soar.

Oil and gas companies have banked even larger profits as the energy crisis has ensued, with Shell and Centrica (the latter of which owns British Gas) posting £11 billion in profits alone during the second quarter of this year.

Shell banked operating profits of £10 billion by themselves during this time, but we’ll touch more on this a little later in the article.

The Ongoing Energy Crisis and Shells Intervention

While new Liz Truss has at least rolled out an energy policy that has capped the respective unit prices for gas and electricity, households are still being forced to pay considerably more for their energy than they did last year in most instances.

At the same time, global supplies continue to dwindle, with the UK having recently been put on notice that gas shortages could occur this winter.

In fact, National Grid’s Electricity System Operator (ESO) has warned that scheduled, three-hour blackouts could be imposed, in the admittedly unlikely event that supplies ultimately fall short of demand.

However, the recent intervention of Shell Chief Executive Ben van Beurden has showcased a glimpse of light at the end of the tunnel. More specifically, van Beurden has called on governments across the globe to impose a windfall tax on energy companies and “protect the poorest in society”.

“You cannot have a market that behaves in such a way that is going to damage a significant part of society”, he told the Energy Intelligence Forum in London last week. “One way or another, there needs to be government intervention that somehow results in protecting the poorest”.

This is a significant development in the story, and one that could signal a sea change in government policy and how the UK government prioritises needs during the energy crisis.