Transmission cables from the 24 offshore wind farms around the UK — which have a combined value of nearly £7.7bn — are all owned by companies with links to corporate tax havens.
A Ferret investigation has found that five companies which part-own the cables — HICL Infrastructure, 3i Group, International Public Partnerships Limited, Equitix, and Dalmore Capital — have links to either Luxembourg, Guernsey, Jersey or the Cayman Islands.
Tax experts called The Ferret’s findings “very significant” and said that the exchequer could be losing “several hundred million pounds” as a result of the tax arrangements. Lost revenue should be “funding the transition out of oil and gas for workers and communities” according to trade unionists and campaigners.
The firms are part of umbrella groups which won auctions to operate the transmission lines transporting electricity from offshore wind farms to land. These cables are valuable because their owners are paid even if the turbines they connect to are not producing energy.
Only three of the five companies responded to a request for comment. The only one to send a quote, HICL Infrastructure, argued that tax haven links “do not impact the amount of corporation tax paid in the UK”.
There is no suggestion that any of the companies are breaking the law with these tax arrangements. The tax haven links were uncovered through scrutiny of EU certifications, regulatory accounts and Companies House filings.
Offshore wind is expected to play an important role in the UK’s net zero future, given that the technology can be deployed at scale and does not produce carbon emissions. The industry is particularly vital in Scotland where it is expected to replace many of the jobs currently held in the oil and gas sector.
There is growing concern, however, that the wind sector could emulate the North Sea oil industry in avoiding taxes and exporting profits.
In July 2021, The Ferret reported that a third of Scotland’s biggest wind farms were linked to tax havens. Industry insiders said then that wind farm ownership was “opaque” and “secretive”.
The firms won ownership of the cables through a bidding process run by the UK energy regulator, Ofgem. This auction system is known as the Offshore Transmission Owner (OFTO) regime.
Cable owners are ultimately paid through consumer power bills and agree a 20-year contract with Ofgem which ensures consistent revenue over this period. This stability makes them a lucrative asset — The Ferret’s analysis found that the cables connecting to the 24 wind farms in UK waters are worth nearly £7.7bn.
The transmission owners are responsible for the operational performance of the cables and for fixing any faults. They do not construct the cables, which are laid by developers when the wind farms are built.
Five umbrella groups, set up solely to own and operate the offshore cables, own the whole of the UK’s offshore transmission network.
Diamond Transmission and Blue Transmission, which include some of the same companies, together own 45 per cent of the cables connected to the UK’s offshore wind farms.
Among the firms that make up Diamond Transmission is HICL Infrastructure. It is domiciled in the UK but still uses a holding company in Luxembourg, which the Tax Justice Network ranks as the sixth worst country in the world in both its corporate tax haven and financial secrecy indexes.
Blue Transmission is part-owned by 3i Group through a Jersey-registered subsidiary called BIF Offshore Windkraft Holdings Limited. Jersey, an island in the English Channel, is ranked eighth worst as a tax haven and 16th worst for financial secrecy.
International Public Partnerships, which is incorporated in another Channel island, Guernsey, is one of the companies that makes up Transmission Capital, which has a 34 per cent stake in the market. Guernsey also ranks highly on the tax haven and financial secrecy index.
Equitix’s cables, which it owns outright for some projects and in partnership with Balfour Beatty for others, are ultimately controlled by Pace Cayman Holdco. This is registered in the Cayman Islands, a British overseas territory in the Caribbean ranked worst in the world for financial secrecy and second worst as a tax haven.
Dalmore Capital, which owns transmission infrastructure for the West of Duddon Sands wind farm, has its transmission assets registered in a holding company owned in Jersey.
The OFTO regime was created by Ofgem to “deliver a coordinated offshore grid as economically and efficiently as possible” by introducing competition into the offshore transmission market.
But some experts believe that it has instead incentivised companies to minimise their tax bills in order to compete.
Dexter Whitfield, a tax expert and director of the European Services Strategy Unit, argued that privatisation of UK energy assets has encouraged transmission companies to employ “a similar corporate ownership model” to the fossil fuel industry, including the “use of tax havens to minimise taxation and maximise profits”.
Whitfield added that being owned in tax havens would save the companies “several hundred million pounds” over the twenty-year period they own the cables.
Ofgem said that bidders are required to outline “all assumptions and calculations in respect of taxation” when participating in OFTO auctions. The body added that it reviews all bids to “ensure they are compliant with UK tax law”.
Foyer said: “If the transition to net zero is to be achieved then workers and communities need to have faith that the transition will not simply enrich private companies who don’t pay their fair share of tax.
“The offshore wind industry likes to play up its green, socially conscious image but this research further exposes the corporate interests behind the turbines, towers and transmission lines.”
He continued: “This is money that should be staying within the UK where it can support vital public services and help fund the transition out of oil and gas for workers and communities.”
A spokesperson for HICL Infrastructure said: “HICL plc is a UK domiciled company with a majority of UK-based shareholders. Although HICL retained a Luxembourg subsidiary when the domicile was changed from Guernsey to the UK, this does not impact on corporation tax paid in the UK.
“The change in domicile was an important milestone in HICL’s evolution, aligning HICL’s corporate domicile with the location of the majority of both its shareholders and its investments.”
Other companies have previously defended their tax arrangements. One, who did not want to be named, argued that the use of tax havens was “standard across the industry” and helped “enhance the returns for investors, including ultimately retail customers and pension funds”.
A spokesman for International Public Partnerships Limited said: “Offshore transmission assets owned by INPP on behalf of ordinary savers and long-term institutional investors like pension plans are limited companies incorporated and tax resident in the UK and thus liable to UK corporation tax.”
This story was updated at 17.15 on 7 January 2022 to add a comment from International Public Partnerships Limited.
Photo Credit: flickr/European Wind Energy Association