UK Gov Changes Terms of Energy Profits Levy

The UK government has announced a flurry of changes to the Energy Profits Levy (EPL), which was first introduced on May 26.

From January 1, 2023, the rate of the EPL will be increased by ten percentage points to 35 percent and a new and temporary tax of 45 percent will be introduced on the “extraordinary profits” of electricity generators, a UK government fact sheet highlighted.

The EPL’s investment allowance is also being reduced from 80 percent to 29 percent for all investment expenditure besides decarbonization expenditure. The original EPL investment allowance meant businesses would get a GBP 91.25 ($10.49) tax saving for every GBP 100 ($118.89) they invested, the fact sheet outlined. Due to the 35 percent levy rate, the 29 percent allowance will broadly maintain the existing cash value of the stipend, the fact sheet pointed out.

In addition, the government is no longer considering phasing out the levy ahead of its end date of March 2028, the fact sheet outlined.

Before the changes, the EPL was expected to raise around GBP 20 billion ($23.7 billion) through to 2025-26, according to the fact sheet, which revealed that after the changes, just over GBP 40 billion ($47.5 billion) in total is expected to be raised.

In a research report sent to Rigzone recently, BofA Global Research highlighted changes in the EPL and dubbed the investment allowance reduction as “the main surprise”.

“We reiterate our view that big oil’s exposure is more impacted by the associated hit to sentiment than the hit to financials,” BofA Global Research noted in the report.

“We estimate that the 10 percent point uplift is only equivalent to 0.7 percent of 2023 cash flow from operations (CFFO) for big oils that on average now pay ~2.5 percent of their 2023 Group CFFO as EPL in the UK,” BofA Global Research added.

In the report, the company highlighted, however, that more UK-focused exploration and production companies “are once again more impacted”. BofA Global Research outlined in the report that the new EPL structure shaves 10 percent of BofA Global Research’s Harbour Energy CFFO across 2023-26.

To contact the author, email andreas.exarheas@rigzone.com