Revenue cap to be introduced on non-gas electricity generators

The Government has announced a cap on all market revenues of non-gas electricity generators in a bid to address windfall gains in the energy sector.

The Minister for the Environment, Climate and Communications, Eamon Ryan, has announced the measures today and said excess revenues as a result of the cap will be collected and used to support electricity consumers

The Minister says elevated wholesale gas prices have led to potential windfall gains for electricity producers, which have seen an increase in revenues from the wholesale electricity market. The elevated prices also have the potential to generate windfall gains in fossil fuel production and refining.

Minister Ryan stated: “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 will apply to non-gas electricity generators with a capacity of 1 MW or more as follows:

· 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 €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. 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 cap on market revenues will operate from December 2022 to June 2023 inclusive, as set out in the Council Regulation.

The Government has also decided to implement the temporary solidarity contribution, as set out in the Council Regulation, to companies active in fossil fuel production and refining for the years 2022 and 2023.

The temporary solidarity contribution is calculated based on the portion of a company’s taxable profits which are more than 20% higher than a baseline. The baseline will be the average taxable profits for the company for the period 2018 to 2021.

Taxable profits which are more than 20% above the baseline will be subject to the temporary solidarity contribution at a rate of 75%.

The Minister 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.

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 Government will determine, in due course, how best to distribute these proceeds, with options including reductions in networks charges or supports provided directly to consumers, similar to those already in place.