Offshore wind farms will be affected by a new EU council regulation to ensure "windfall gains" from the energy sector.
The Government says it has decided to place a cap on all market revenues of non-gas electricity generators, whereby excess revenues will be “collected and used to support electricity consumers”.
Proceeds could range from around €300 million to €1.9 billion, through the cap on market revenues and a “temporary solidarity contribution” from fossil fuel companies, it estimates.
The cap on market revenues from December of this year to June of next year will apply to non-gas electricity generators with a capacity of 1 MW or more, and involves:
- a cap of €120 per MWh for wind and solar;
- a cap of at least €180 per MWh for oil-fired and coal-fired generation;
- a cap of €180 per MWh on other non-gas generation
“The Russian invasion of Ukraine has led to unprecedented increases in wholesale natural gas prices, impacting the prices paid by consumers, but also leading to windfall gains in some areas of the energy sector,” Minister for Environment Eamon Ryan said.
“The agreement of the EU Council Regulation and the Government’s approval on its implementation will ensure that windfall gains will be collected and redistributed to support energy consumers,” he said.
The €120 per MWh cap for wind and solar takes into account the revenues generators would have expected to earn prior to the increase in gas prices, which was less than €100 per MWh, and the limited increase in costs incurred by these generators, his department says.
“It should also be noted that where electricity suppliers can demonstrate that revenues in excess of the cap are being passed on through lower prices to final consumers, those revenues will not be subject to the cap,”the department says.
“ The cap on market revenues will operate from December 2022 to June 2023 inclusive, as set out in the Council Regulation,”it says.
The Government says has also decided to implement the “temporary solidarity contribution”, as set out in the Council Regulation, to companies which are active in fossil fuel production and refining for the years 2022 and 2023.
This “ temporary solidarity contribution” is based on the portion of a company’s taxable profits which are more than 20% higher than a baseline, it says
“ The baseline will be the average taxable profits for the company for the period 2018 to 2021. Losses from previous years will not be taken into account in the calculation of the taxable profits in temporary solidarity contribution or the baseline,”Ryan’s department says.
“Taxable profits which are more than 20% above the baseline will be subject to the temporary solidarity contribution at a rate of 75%,” it says.
“ This will lead to an effective rate of 0% for windfall gains of up to 20%, an effective rate of 50% for windfall gains of 60%* and an effective rate of 60% for windfall gains of 100% (i.e. where profits have doubled),”it says.
“Given the volatility of gas prices, the level of proceeds from the cap on market revenues and the temporary solidarity contribution cannot be estimated with any certainty,” it says.
“ Depending on the price level of natural gas, the proceeds could range from circa €300 million to €1.9 billion. However, the level is expected to be in the lower end of this range and could be even lower if gas prices reduce,” it adds.
Minister for Environment Eamon Ryan
Proceeds from the cap on-market revenues are expected to be collected in 2023, with proceeds from the temporary solidarity contribution to be collected in 2023 and 2024.
The EU Council Regulation says that the proceeds can be used to the benefit of electricity consumers.
This could include reductions in network charges, or supports provided directly to consumers, similar to those already in place.
The Government says it “will determine, in due course, how best to distribute these proceeds”.
