Government approves the General Scheme of legislation to address windfall gains in the energy sector

The Minister for the Environment, Climate and Communications, Eamon Ryan TD, has announced Government approval of the General Scheme of the Energy (Windfall Gains in the Energy Sector) Bill 2023. The legislation is necessary to implement the temporary solidarity contribution and the cap on market revenues to address windfall gains in the energy sector.

The war in Ukraine has led to significant increases in wholesale natural gas prices. As a result, consumers are paying higher prices for gas and electricity. High wholesale gas prices have also led to windfall gains for some entities in the fossil fuel production and refining sectors, and in the electricity sector.

The level of proceeds to be raised by the temporary solidarity contribution and the cap on market revenues is currently estimated to range from circa €280 million to circa €600 million. Council Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices, which came into force in October 2022, seeks to address the issue of windfall gains by collecting and redistributing proceeds from these gains by:

  • a temporary solidarity contribution based on taxable profits in the fossil fuel production and refining sectors (which will apply for 2022 and 2023); and
  • a cap on the market revenues of some generators (such as wind, solar and oil) in the electricity sector (which will apply for the period December 2022 to June 2023 as set out in the Council Regulation).

Proceeds from the cap on market revenues are expected to be collected in September 2023 and will be used to support electricity customers in mitigating the impact of high electricity prices as set out in the Council Regulation. 

Proceeds from the temporary solidarity contribution are expected to be collected in September 2023 and September 2024. The Council Regulation allows for these proceeds to be used in a wider range of areas including to financially support energy consumers, to reduce energy consumption or to promote investments in renewable energy. It will be a matter for Government to decide how to allocate proceeds collected. 

On 22 November 2022, the Government approved the implementation of the measures contained in the Council Regulation along with key high-level decisions in relation to their implementation (see here). The General Scheme of the Energy (Windfall Gains in the Energy Sector) 2023 Bill, approved today, will implement the temporary solidarity contribution and the cap on market revenues.

The General Scheme has been developed by the Department of the Environment, Climate and Communications following consultation with relevant Departments, agencies and stakeholders. It seeks to ensure collection of windfall gains while minimising the impact on energy markets, security of energy supply and future investments.

Further consultation with stakeholders and the Joint Oireachtas Committee on Environment and Climate Action is expected as the detailed legislation is developed. The General Scheme will be the basis of the Energy (Windfall Gains in the Energy Sector) 2023 Bill, which will be brought to Government before being published and introduced in the Oireachtas. It is intended that this legislation would be enacted before the summer recess.

The Council Regulation sets out that the proceeds can be used to the benefit of energy consumers. The Government will determine, in due course, how best to distribute these proceeds. 

It should be noted that a wide range of supports for all energy consumers have been put in place by the Government. Full details are available at: www.gov.ie/ReduceYourUse.

NOTES

Council Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices includes:

  • a temporary solidarity contribution based on taxable profits for fossil fuel companies, and
  • a cap on market revenues of specific technologies in the electricity sector.

The temporary solidarity contribution will:

  • apply to fossil fuel production and refining;
  • apply for 2022 and 2023;
  • be based on 75% of taxable profits which are more that 20% above the baseline of taxable profits for the period 2018-2021;
  • not include losses from previous years when being calculated; and
  • be administered by the Revenue Commissioners.

The effective rates of the temporary solidarity contribution based on the share of additional profits will be as follows:

  • if profits increased by 20%, 0% would be collected and so the effective rate would be 0%;
  • if profits increased by 40%, 15% would be collected and so the effective rate would be 37.5%;
  • if profits increased by 60%, 30% would be collected and so the effective rate would be 50%;
  • if profits increased by 80%, 45% would be collected and so the effective rate would be 56.3%;
  • if profits increased by 100%, 60% would be collected and so the effective rate would be 60%The proceeds from the temporary solidarity contribution will be remitted to the exchequer and expended in line with the requirements set out in the Council Regulation.

The cap on market revenues will:

  • be introduced for specified generators in the wholesale electricity market (including wind, solar, oil and coal);
  • apply to all market revenues of relevant generators;
  • not apply only to facilities with a capacity of up to 1MW;
  • include a cap of €120 per MWh for wind and solar;
  • not apply to wind or solar energy projects which make difference payments to the Public Service Obligation for surplus revenues above the relevant auction strike price under the Renewable Electricity Support Scheme as these revenues are already capped;
  • include a cap of at least €180 per MWh for oil-fired, coal-fired and biomass/peat-fired generation that is high enough to the collect windfall gains while ensuring this generation continues to operate and provide security of supply;
  • include a cap of €180 per MWh for all other technologies; and
  • be administered by the Commission for Regulation of Utilities.

The proceeds from the cap on market revenues will be retained and used in the electricity sector to lower prices for consumers in line with the requirements set out in the Council Regulation.

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