WHEN ENERGY PRICES hit exceptionally high levels, energy companies can make exceptional profits. 

Joining the dots between those profits and consumers’ bills is really complicated, but it’s worth teasing out for two reasons.

Firstly, because we are the ones who ultimately have to pay for this increasingly expensive oil, gas and electricity, and secondly because it is clear that taxing any windfall – large and unexpected – gains would raise revenue that could be used to help the public. One in seven Irish households is in arrears on their electricity bills.

This is now the subject of a stand-off between the Irish government and Brussels – if it can even be called a stand-off, since it’s pretty clear that neither side is particularly exercised about the question one way or the other.

The opposition is clamouring for the government to tax the extra profits and use that money to help households with their bills. The government, however, insists that a coordinated EU approach is needed. 

The problem is that the European Commission has no intention of coordinating any such thing. As far as Brussels is concerned, there is nothing stopping Ireland or any other country from going it alone.

“Member states are the best placed to tax windfall profits,” a spokeswoman for the commission told The Journal.

“Taxation of windfall profits remains a member state competence, and member states can act on the basis of national legislation.”

The strange thing here is that the idea is not novel: it’s already on the statute book. That’s because these exact measures were implemented EU-wide as recently as three years ago in response to the energy price spike caused by Russia’s invasion of Ukraine.

In Ireland, over €450 million was raised, most of it ploughed into energy credits to help households with their bills.

Now there are two wars driving up energy prices – thanks, Donald Trump – but the government has so far refused to rinse and repeat with the same legislative response.

Paul Deane, senior lecturer in clean energy futures at University College Cork, believes there is a moral imperative for the government to intervene.

“My view is that the same legislation should be reactivated now. Anyone who is making exceptional profits during the time of war, it’s just wrong for so many reasons – public trust, everything,” Deane says.

There were actually two separate special taxes for two different parts of the energy sector in 2023, both of which Deane argues can and should be reactivated now.

The first was a windfall tax on oil and gas extraction and refining companies’ windfall profits. This raised €167 million in 2023 and €99.7 million for the Irish exchequer in 2024.

This money was put towards energy credits for households’ electricity bills in 2023, 2024 and 2025, although it didn’t cover the total cost of those credits by any means. The credits were universal rather than targeted at the most vulnerable households so they were very expensive.

Energy credits have not been reintroduced since the Iran war drove prices higher, even though Ireland’s electricity costs are the highest in the EU.

To be clear, oil and gas producers’ excess profits are even fatter now than they were in 2023.

BP made a record $8.5 billion (€7.4 billion) profit for the third quarter of this year. Total’s third quarter profit more than doubled year-on-year to an eye-watering $9.1 billion (€8.13 billion).

There’s Irish interest here because Vermilion Energy, the Canadian gas producer that operates the Corrib field, is still fighting the 2023 windfall tax in the EU court.

Vermilion is likely to lose: an adviser to the Court of Justice of the European Union concluded last month that the temporary tax on Big Oil and Gas was legal.

Electricity sector levy

The second measure implemented in 2023, which the opposition has been pushing the government to reintroduce now, was a “cap on market revenue” in the electricity sector.

This was basically a tax on revenues above a certain market price for electricity, unless suppliers could prove that revenues over the cap were being passed on through lower prices to customers.

The 2023 measure raised almost €190 million – quite a bit more than even the higher range of what the government expected. So far, €27 million from this pot has been put towards solar energy grants for businesses. The Department of Energy has indicated the rest will be used to support electricity customers in some way.

Jennifer Whitmore, the Social Democrats TD who tabled a Dáil motion in recent weeks to reintroduce both measures, argues that Ireland has no excuse not to act now. The government voted her bill down, reiterating its preference for an EU-wide response.

“Our government is responsible for the citizens of our state, and they should be implementing whatever policies they can that will assist with the reduction of prices in Ireland. We need to stop this hiding behind the EU all the time,” Whitmore says now.

She noted that Portugal has already introduced its own windfall tax on oil producers’ and refiners’ windfall profits.

She adds that the revenue potential is not to be sniffed at. The forthcoming hike in public transport fees will raise €70 million. This could raise almost €500 million.

ESB, Energia and Bord Gáis profits

Introducing her bill in the Dáil, Whitmore drew attention to the fact that the biggest energy suppliers in the Irish market all made decent profits in the first half of this year.

The ESB’s first-half profit was up 20% year-on-year, while Energia’s second quarter profit was up 25%. Bord Gáis made a pre-tax profit of €50 million in the first half, but this was basically flat year-on-year.

Looking in detail at these companies’ results, however, it’s clear that these financial performances were not a straightforward story of companies profiting by hammering households with higher bills.

Operating profits from the customer solutions divisions of both ESB and Energia – the parts of the companies that include their household electricity businesses – were actually down in the first half of the year as wholesale prices rose. Both companies say they use hedging strategies to help shield customers from higher prices.

However, both firms went on to increase their household tariffs in the second half of this year. Their customers are now facing bigger bills this winter.

In reality, the part of the electricity sector that is making those windfall profits from higher prices is at a remove from households. 

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“Contrary to popular opinion, suppliers actually don’t make a huge amount of money from selling electricity. The typical margins that you would expect on the retail side would be 3-5%,” Deane explains.

There might be higher profits on certain plans offered by any particular companies, but it will probably all average out at those low single-digit margins. 

“Sometimes people look at profits, and they see the word millions and say ‘oh that’s wrong’, but actually, you have to understand the profits that companies make in proportion to the investments that they have to put down.

“If you’re making a €50 million profit, but you have to spend €400 million on a wind farm, you must be considered in that light,” Deane says.

Some of the companies making a lot of money would be smaller operators of older renewable generation schemes, whose contracts were set 15 years ago. The Irish wholesale electricity price is determined by the price of gas, which has soared.

Whitmore said the ESB had to pay a considerable amount of money towards the 2023 tax.

The ESB told The Journal that it was making higher profits this year because it is investing in new generation assets and network infrastructure – and not because of gas price increases.

“These investments naturally result in an increase in profits. The new revenues… translate into higher profit levels,” it said.

It said it would “engage constructively” if the government proposed similar measures to those that followed Russia’s invasion of Ukraine, which it had fully supported and implemented.

Bord Gáis said any new tax would have to be carefully designed to ensure it did not have unintended consequences for investment in Ireland’s energy infrastructure, which it is currently investing €1 billion in.

This is basically the government position too. The Department of Finance said any measures (which it emphasised should happen at EU level because of the bloc’s interconnected market) must avoid unintended consequences “including potential impacts on investment in the energy sector and on security of supply”.

War

Electricity suppliers that are making higher profits in the current market have done nothing wrong, Deane notes. 

“They’re just following the contract they signed up for 15 years ago. Nobody 15 years ago would have thought that gas prices would have been the price they are today,” Deane said.

The companies would also no doubt point out that they took a punt when they put their money into new generation – but Deane believes that argument only goes so far.

“When there are two wars going on, and we’re all struggling, and the Irish public have supported renewables for the last 15, 20 years through the Public Service Obligation [levy on bills], the least that the industry can do now is reciprocate some of that support that we have given, especially if they are making exceptional profits.

“If you’re making exceptional profits off the back of the war, that’s unfair.”