Chancellor Reeves Set to Hike Windfall Tax on Low‑Carbon Power as SSE Shares Slide

**TL;DR** Chancellor Rachel Reeves plans to increase the windfall tax on low-carbon electricity generators. This move aims to curb household energy bills, following a significant 6% drop in SSE share value after the announcement.

UK households currently pay electricity prices linked to the most expensive generation source, typically gas-fired power plants. This market dynamic allows older, low-carbon electricity generators, such as some wind farms and nuclear plants, to sell their power at these elevated prices despite having significantly lower operating costs without fuel price volatility. This situation often results in considerable profits for these companies while consumer bills remain high. Chancellor Rachel Reeves is now set to increase the government's windfall tax on these low-carbon generators.

The existing Electricity Generator Levy, introduced in 2022, imposes a 45% tax rate on electricity sold above £75 per megawatt-hour (MWh). This levy specifically targets profits deemed excessive from these generators. The announcement of Reeves's intention to raise this tax had an immediate market impact. SSE shares dropped over 6% on Friday, hitting their lowest point since an energy price surge linked to the Iran conflict. This decline reflects market sensitivity to policy changes affecting generator revenues and future profitability.

This proposed tax hike serves as a short-term measure to raise Treasury funds and help mitigate rising household energy bills. Beyond the immediate tax adjustment, the government plans to initiate a consultation on more fundamental reforms. These "radical" proposals seek to permanently weaken the link between volatile gas market prices and the overall cost of Britain's electricity, aiming to better reflect the lower costs of renewable generation. One option under consideration includes transitioning older low-carbon projects, currently subsidized by legacy schemes, onto modern set-price contracts. Analysts have previously estimated that such reforms could save between £4 billion and £10 billion annually if high market prices persist. The energy sector awaits further details on the revised tax rates and the scope of these significant market reform consultations, expected as early as next week.