Green Energy Investment Stalls as UK Mulls Capital Gains Tax Hike
Potential tax increases are causing concern among green energy investors and wealthy non-doms in the UK. Industry leaders warn of stalling investments and possible exodus of capital.
The UK's green energy sector is facing a period of uncertainty as potential tax increases loom on the horizon. Stefano Sommadossi, CEO of NatPower UK, Britain's largest battery storage developer, has raised concerns about the impact of possible capital gains tax hikes on investment in renewable energy projects.
Sommadossi stated, "Infrastructure investors are hesitating, awaiting decisions from Rachel Reeves regarding expected capital gains tax increases." This uncertainty comes at a critical time for the UK's energy transition, as the country aims to achieve net zero emissions by 2050.
Earlier this year, NatPower committed to a £10 billion investment in the UK for developing battery "gigaparks," wind turbines, and solar panels. However, the potential tax changes threaten to slow down this ambitious plan. Battery storage is crucial for balancing the grid with intermittent renewable energy sources, and any delay in its development could hinder the UK's progress towards its clean energy goals.
The Treasury has indicated that tax increases will be announced in the upcoming Budget on October 30, 2024, as the Chancellor attempts to address a £22 billion deficit in public finances. These potential tax hikes are causing ripple effects across various sectors, including the renewable energy industry and wealth management.
David Durlacher, international chief executive of Julius Baer, expressed concerns about the impact on non-domiciled residents. He warned that increasing capital gains tax could be the "tipping point" for many wealthy non-doms, potentially leading to an exodus of capital from the UK.
"The impact of (increasing capital gains tax) on investors would be very material and that would have a very punitive impact. For a resident non-dom that could prove the tipping point of whether they left or not."
The UK's energy landscape has undergone significant changes in recent years. In 2023, approximately 40% of the country's energy mix came from renewable sources. Battery storage capacity has grown from less than 1GW in 2020 to over 5GW in 2024, highlighting the rapid progress in this sector. However, the country still relies heavily on energy imports, which Sommadossi argues is "importing inflation."
As the UK government grapples with these complex issues, it must balance its fiscal needs with the imperative to maintain a favorable investment climate for renewable energy projects. The outcome of these decisions will have far-reaching consequences for the country's energy security, economic stability, and progress towards its climate goals.
