The shares of investment trusts which own green energy assets have slumped after reports that a prospective windfall tax on oil and gas companies could be extended to electricity generators which are also benefitting from sky-high power prices.

Chancellor Rishi Sunak has asked Treasury officials to draw up plans for a special levy on more than £10bn of excess profits from power generation, including wind farms, as he seeks to raise billions of pounds to help consumers struggling with high energy bills, the Financial Times reported.

‘North Sea oil and gas producers are only half the picture,’ one source told the paper. ‘The other half is that high gas prices have led to some pretty substantial windfall profits for all electricity generation.’

Such a scheme would go well beyond the Labour party’s original proposal to target elevated profits from North Sea oil and gas production at the likes of BP (BP) and Shell (SHEL), and could also pull in major power generators such as SSE (SSE), as well as specialist renewables infrastructure vehicles.

Shares in £3.7bn Greencoat UK Wind (UKW ) tumbled 5.5% to 150.3p while £3.3bn Renewables Infrastructure Group (TRIG ) slumped more than 4% in morning trading before paring back losses to trade down 2.7% at 131.4p.

Among more medium-sized funds, JLEN Environmental Assets (JLEN ) dipped 3.1% to trade at 120p and Bluefield Solar Income (BSIF ) fell 2.3% to 130.4p.

Share price losses were concentrated on closed-end funds with a high proportion of renewables assets in the UK, with those with more European exposure and in adjacent sectors such as battery storage and energy efficiency largely shielded.

The falls were even more dramatic among broader energy business and generators. Shares in SSE, something of a poster child in the sector for its successful move into developing massive renewables projects, including the world’s largest offshore wind farm Dogger Bank, slumped 9.3%. Drax (DRAX) dropped 16.5% while British Gas owner Centrica (CNA) fell 9.9%.

‘We think today’s reports put a bit of a cloud over the sector, which had been performing well and attracting in new capital from investors as the funds financed the purchase of new wind and solar projects,’ said Iain Scouller, an analyst at broker Stifel.

Scouller noted said it was not clear how any windfall tax on generators would be imposed and whether it would just affect large companies investing in substantial projects or be further reaching. Theoretically, an additional corporate tax could be levied on individual renewable projects, although this would be retrospective and ‘probably gives a bad signal to potential investors in renewables at the very time the government is keen to encourage renewable investment’, he said.

Jefferies equity analyst Ahmed Farman said the forward agreements which are overwhelmingly used to sell power at a fixed rate were another important factor and ‘can massively limit the actual benefit from a recent high price environment’. He estimated that, across their coverage of companies generating electricity, ‘most names are 90-100% hedged’ for the rest of this year.

‘In our opinion, a windfall tax that doesn’t fully take into account production sold forward would be a long-term negative to the UK energy transition story as a whole,’ he said.

Though details of the broadened energy windfall tax remain unclear, Farman noted other markets like Italy and Spain have mechanisms in place for capping profits above an allowable level. However, he pointed out that the chancellor has vocally encouraged oil companies to reinvest profits back into the energy transition and that could be extended to renewable generators when it comes to exemptions from any windfall tax.

The reports follow an extremely strong period for renewables infrastructure trusts. Earlier this month, JLEN reported a ‘blowout’ first quarter as the value of its portfolio was written up nearly 15%. Peers have also delivered forecast-beating figures, with Foresight Solar (FSFL ) and Greencoat UK Wind posting respective first-quarter returns of around 8% and 12%.

A steep rise in near-term power prices, with gas soaring after the outbreak of war in Ukraine, has been a key factor, but high inflation more broadly has also played a role in boosting the cash flow potential of wind farms and other assets, with existing government subsidies attached to renewables usually being index-linked.