Britain’s electricity generators will face pressure from ministers to invest their “extraordinary profits” in new green energy projects, rather than paying out the windfall to shareholders.
Some have made huge profits from surging electricity prices that have risen in line with the soaring cost of gas, even if the power they produce comes from renewables or nuclear energy.
Nadhim Zahawi, the chancellor, will on Thursday keep alive the prospect of hitting the generators with a new windfall tax if they do not invest their profits in renewable energy schemes.
“It is one of a suite of options,” said one ally of Zahawi. The chancellor has instructed officials to draw up a list of policy alternatives for whoever becomes Tory party leader and therefore UK prime minister on September 5.
The chancellor and Kwasi Kwarteng, business secretary, will meet generators including Centrica, Drax and RWE to discuss the energy crisis, including the sharp jump in household bills.
The meeting comes after warnings of a bleak winter for consumers, with average annual gas and electricity bills forecast to hit £4,420 by the spring — more than three times the level at the start of this year.
While the government has announced around £15bn in support, including a one-off payment of £400 to every household, the measures were unveiled when bills were expected to reach around £2,800 by October, far lower than current predictions.
Pressure is growing for further action to help households as spiralling energy costs risk tipping the wider economy into recession.
“The government is in a complete tailspin,” said one industry figure briefed on the planned talks.
“There’s a degree of panic. They’re looking at everything and everything is on the table.”
No decisions are expected until either Liz Truss or Rishi Sunak is elected leader by Tory party members next month, prompting accusations that the government is sleepwalking into a crisis.
Frontrunner Truss has rejected the idea of further windfall taxes on energy companies, saying last month that it would “send the wrong message” to the world.
Kwarteng, who is tipped to be chancellor in a Truss government, is also an opponent of windfall taxes, which he argues are a deterrent to investment.
Former chancellor Sunak first proposed a possible £3bn-£4bn windfall tax on electricity generators, alongside the new £5bn levy on North Sea oil and gas producers.
But Treasury work on the idea stalled because of technical problems in introducing the new levy. Sunak’s allies declined to say whether he still favoured more windfall taxes on the sector.
Kwarteng has instead focused on reforming the energy market so that electricity prices more accurately reflect the cost of production.
But these reforms, which require legislation, will not take effect before the winter, raising the prospect of electricity companies making huge excess profits at a time of soaring energy bills.
Ministers will therefore ask the generators to set out their investment plans and what they can do to help consumers, as well as discussing their likely profits and how they might be distributed to shareholders.
“The government continues to evaluate the extraordinary profits seen in certain parts of the electricity generation sector and the appropriate and proportionate steps to take,” a government spokesman said.
The talks are expected to explore the impact of cutting green levies and VAT from existing bills and plans to increase the warm homes discount. The government is also likely to probe the energy companies’ plans in the event a large number of customers refuse to pay their bills this winter.
Companies with significant generation capacity, such as France’s EDF — which owns the UK’s remaining nuclear power plants — have earned stronger-than-expected revenues without a significant rise in generation costs.
The French state, which already owns 84 per cent of the company, is in the process of fully nationalising EDF and has asked the company to keep increases in French electricity bills to just 4 per cent this year.
Centrica, owner of British Gas, has also enjoyed stronger profits in part due to its 20 per cent stake in the UK’s nuclear fleet.