Collection of energy firms’ windfall profits could net up to €1.9bn, Minister says

The Government has agreed to collect windfall profits from energy companies in a move which it says could be worth up to €1.9 billion.

Minister for the Environment Eamon Ryan brought a memo to Tuesday’s Cabinet meeting outlining details of the cap and Ministers were told that excess revenues will be used to support consumers at a time of high electricity costs.

Mr Ryan told a press conference later that higher wholesale gas prices have led to potential windfall gains for electricity producers, which have seen an increase in revenues from the wholesale electricity market. He said the elevated prices also have the potential to generate windfall gains in fossil fuel production and refining.

“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 Green Party leader said.

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Mr Ryan said an agreement at EU level of a regulation on windfall taxes in September and the Government’s approval of this would “ensure that windfall gains will be collected and redistributed to support energy consumers”.

Solar power producers

The agreed cap on market revenues applies to energy providers with a capacity of 1 megawatt (MW) or more. Wind and solar power producers will be subject to a cap of €120 per megawatt hour (MW/h) while oil and coal-fired generators’ revenues will be capped at €180 per MW/h. Other non-gas generators will also be capped at €180 per MW/h.

The Department of Environment said 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, which will operate from December until next June.

The Cabinet also agreed to a new temporary solidarity contribution which will apply to companies active in fossil fuel production and refining. This will be in place this year and next year. The contribution is calculated based on the portion of a company’s taxable profits which are more than 20 per cent higher than a baseline of its average taxable profits between 2018 and last year.

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

Volatility

Mr Ryan said that given the volatility of gas prices, the level of proceeds from the cap on market revenues and the temporary solidarity contribution was difficult to estimate. However, he said it could range anywhere from €300 million to €1.9 billion. The actual value of the cap is expected to be in the lower end of this range and could be even lower if gas prices fall.

The funding collected would be kept within the State, Mr Ryan said on Tuesday. The monies will be collected from next year onwards and could be directed towards reducing in network charges or providing supports directly to consumers, similar to those already in place. In Budget 2023, the Government said it would provide three €200 energy credits for every household in an effort to tackle soaring bills.

The cap is to be administered by the Commission for Regulation of Utilities and the temporary solidarity contribution by the Revenue Commissioners.

Mr Ryan described the Government decision as “significant” and said the approach was “fair, pragmatic and practical”