On 30 September, the EU energy ministers agreed on a first package of emergency intervention measures to address skyrocketing energy prices. The ministers reached an agreement following a short discussion, keeping the core substance of the Commission proposals while adding few amendments which enable flexibility and practical implementation.
The aim of the package is to provide common solutions to the current energy crisis, and reduce the pressure set on European citizens. The EU intends to do so by setting a cap on market revenues for the production of energy from inframarginal technologies as well as to set a windfall tax on ‘excess profits’ of companies operating in the gas, oil and refinery sectors by minimum 33%.
What is the EU Energy Crisis Package?
The Commission proposed several electricity emergency ‘tools’ (i) to address high energy prices through measures aimed at reducing electricity demand and (ii) to redistribute the excess revenues from energy sector companies via a solidarity contribution broadly similar to a tax.
Impact for companies operating in the energy sector
Cap on market revenues for the generation of electricity from inframarginal technologies
- The EU intends to introduce a revenue cap to recover excess revenues from electricity generators with lower marginal costs (inframarginal technologies) set at EUR 180 per MWh (this differs from the leaked proposal, where the price was set at EUR 200 MWh). The targeted group includes renewable electricity, nuclear and lignite producers. The aim consists in minimising the impact of expensive price-setting marginal sources like coal or gas on the final price of electricity. This tax would apply from 1 December until 31 March 2023.
- Scope: the revenue cap is applicable to revenues from the sale of electricity produced from technologies whose marginal costs are lower than the cap, such as wind, solar, geothermal, nuclear energy, biomass, oil and oil-related products, hydropower installations without reservoir, etc. It will not apply to the technologies with input fuel costs leading to break-even level above the cap level (e.g., gas-fired and coal-fired power plants).
Temporary Solidarity contribution – Windfall tax
- A temporary solidarity contribution targeting surplus profit of companies and permanent establishments active in the oil, gas, coal and refinery sectors. This windfall tax would apply on 2022 profits, which are above a 20% increase compared to the three previous years average. The rate would be at least 33%. Member States are permitted to go further than the proposed regulations.
Key takeaways and next steps
The EU Energy Crisis Package complements the RepowerEU measures adopted a few months ago. The new measures will have definite impact on companies operating in the energy sector, and all those leveraging renewable energy they produce as an auxiliary activity. The Commission package is very ambitious and will require agility from companies to ensure compliance with the new rules. In particular, it will be critical to monitor the transposition of the EU Energy Crisis Package into domestic legislation. For example, the Belgium Federal Energy Minister publicly expressed her willingness to tax suprofits above EUR 130/MWh for a period of two years.
The measures will be formally adopted in writing in the coming weeks, and will then be published in the Official Journal and enter into force on the next day.
Finally, a possible next step highlighted by the ministers during their discussions would be to impose a price cap on all gas imports to the EU and gas transactions within the EU. 15 Member States endorsed this package (including Belgium). No consensus exists so far on this proposal.