The European Commission is proposing a temporary revenue cap on so-called “inframarginal” electricity producers.
The commission has estimated that Member States would be able to collect up to €117bn from the proposed temporary revenue cap on inframarginal electricity producers, on an annual basis, which would go towards reducing bills for consumers.
The proposed Council Regulation on an electricity emergency tool is in response to the increase in electricity prices, which have risen 10-fold in the past year, driven by the high price of gas due to Russia’s invasion of Ukraine and demand from global markets.
The commission proposes to set the inframarginal revenue cap at €180 per megawatt-hour, which will allow producers to cover their investment and operating costs without impairing investment in new capacities in line with the EU’s 2030 and 2050 energy and climate goals.
Inframarginal electricity producers are technologies that include renewables, nuclear and lignite, which are providing electricity to the grid at a cost below the price level set by the more expensive “marginal” producers, which tends to be natural gas.
These inframarginal producers have been making “exceptional revenues”, with relatively stable operational costs, as expensive gas power plants have driven up the wholesale electricity price they receive, the commission said.
The surplus revenues collected from inframarginal producers will have to be channelled by the Member States to final electricity consumers, be it private or commercial ones, who are exposed to high prices.
These revenues can be used to provide income support, rebates, investments in renewables, energy efficiency or decarbonisation technologies, the commission said.
The support provided should keep an incentive for demand reduction, with decisions on the precise distribution will be taken at national level in line with the principles established in the proposed Council Regulation on an electricity emergency tool, the European Commission is proposing.
The exact amount of revenues per Member State will depend on the amount of electricity generated from inframarginal technologies in the country and the level of electricity prices during the time of application of these measures. It will vary depending on the energy mix and the design of support schemes for renewable energy in each Member State.
The European Commission has designed the cap so it does not apply to those wind farms that aren’t earning today’s wholesale electricity prices.
Most wind farms in Europe are in fact on fixed income: either from a Government contract, a PPA with an industrial consumer – or they’ve hedged against both lower and higher market prices.
However, the European Commission proposal would allow Member States to go further in limiting the revenues of inframarginal producers of electricity, so that Member States could maintain already introduced price caps, which WindEurope said is not helpful.
The trade group said a “patchwork of different price caps”, unilaterally introduced by individual Member States, creates investment uncertainty.
“The EU wants a huge expansion of renewables to help get out of the current energy crisis. That means loads of new investments in wind and solar. But investors need visibility. So an EU-wide cap on revenues from wind should be precisely that – a single EU-wide cap.
“Allowing countries to deviate from it and have lower caps creates confusion and uncertainty – and will slow down the investments we so badly need”, said WindEurope CEO Giles Dickson.
Swedish developer Vattenfall said in statement that it agreed the revenue cap is “the fastest way to mitigate the high electricity prices”.
But it warned that it “risks risks hindering investments into new fossil free electricity production” and therefore should only be a “temporary” measure.
Vattenfall stated: “We agree to the importance of measures for demand reduction. This is the fastest way to mitigate the high electricity prices.
“The situation is challenging for many customers. We recognize this and therefore support short-term compensatory measures to vulnerable customers.
“The proposed revenue cap however risks hindering investments into new fossil free electricity production, which is what the European energy market now needs more than ever.
“It is therefore important that the proposal is temporary.
“It is also important to take into account that many electricity producers hedge their production and thereby are not benefiting from high electricity prices to the same extent.
“We will now analyse the proposals further and how they may impact Vattenfall.”