It would be disproportionate to expand the windfall tax to electricity generators, argued Cornwall Insight, which have proved more vulnerable to rising interest rates and easing commodity prices.
The energy specialist compared the share price performance of large electricity generators and listed funds to oil and gas companies over the past 12 months – which best reflect expectations for profits from investors.
It outlined that oil and gas share prices have climbed 150 per cent since November 2021.
By comparison, renewable listed funds peaked at 115 per cent of their November 2021 price and have since fallen back to the same level as early March 2022.
Meanwhile, shares electricity generator companies have shown a strong correlation with the economic climate – ahead of an expected recession over the coming months.
The study from lead research analyst Matthew Chadwick, with multiple media reports the Energy Profits Levy on North Sea fossil fuel operators will be raised form 25 to 30 per cent and potentially extended to 2028 from its previous 2025 cut-off date.
Chadwick argued that renewables listed funds are shown to be very sensitive to rising interest rates in the UK – as they heavily impact rates for components in valuations.
Electricity generator companies, meanwhile, are highly exposed to domestic price movements.
By contrast oil and gas companies are more internationally diverse, with BP only making around 16 per cent of its profits in the UK.
Gas looks to be in it for the long-haul says Cornwall Insight
Fossil fuel companies also trade in the source driving the whole energy value chain – gas – and have been able to forward sell under ever increasing price levels since the end of 2021.
This means headwinds such as windfall taxes and a recession has not driven down their prices, which climbed to record highs across fossil fuel giants in the third quarter.
Chadwick believed his analysis was instructive – treating renewable funds as a representative sample of broader renewable projects around the world such as in onshore wind and solar.
He explained: “If this is true, then it would be rash to assume that there are excessive windfalls to tax in this part of the market.
“And, if so, then the damage that undertaking such measures could have on investor confidence, and ultimately the increased risk premia on future investments, in the medium- to long-term could exceed the benefits that a windfall tax might reap in the short term.
Last month, former Prime Minister Liz Truss unveiled a temporary ‘cost-plus revenue limit’, which was intended to stop low carbon generators benefitting from abnormally high wholesale costs driven by spikes in gas prices, forcing up costs for consumers even though renewable energy is generally cheaper to produce.
However, the state of these proposals following her arrival and Rishi Sunak’s arrival remains unclear.