THE EXCHEQUER IS set to collect excessive windfall profits from electricity companies that have taken in large amounts of revenue this year.
At a meeting this morning, Cabinet approved a windfall tax on non-gas electricity generators that will cap their market revenues.
Revenue above the cap will be collected and used to support consumers facing expensive bills.
However, electricity suppliers will not be subject to the cap if they can demonstrate that excess revenues are being passed on to final consumers through lower prices.
It follows an EU Council decision to introduce a windfall tax on the profits of energy companies as part of a suite of measures targeted at the soaring cost of energy across the bloc.
Under the Council Regulation, the cap is due to operate from December 2022 to June 2023.
The Department of Environment said that “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”.
“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.”
The proceeds for the State are due to be collected in 2023, with options for where to allocate the income including supports provided directly to consumers or reductions in network charges.
In a statement, Minister for Energy Eamon Ryan said that 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”.
“The agreement of the Council Regulation and the Government’s approval on its implementation will ensure that windfall gains will be collected and redistributed to support energy consumers.”
The cap on market revenues agreed today applies to non-gas electricity generators with a capacity of 1 MW or more, with different limits depending on the type of power.
Wind and solar power producers will be subject to a cap of €120 per MWh while oil and coal-fired generators’ revenues will be capped at €180 per MWh. Other non-gas generators will also be capped at €180 per MWh.
“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,” the Department of Environment outlined.
Cabinet also green lit a ‘temporary solidarity contribution’, also included the Council Regulation, to be paid by companies in fossil fuel production and refining for 2022 and 2023.
The contribution is calculated based on the portion of a company’s taxable profits which are more than 20% higher than a baseline of average taxable profits for the company for the period 2018 to 2021.
Taxable profits more than 20% above the baseline will be subject to the temporary solidarity contribution at a rate of 75%, giving rates of 0% for windfall gains of up to 20%, 50% for gains of 60% and 60% for gains of 100%.
Proceeds from the temporary solidarity contribution are to be collected in 2023 and 2024.
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