Date: 22/09/2022

Pressures exercised on European Union's energy markets have been tackled by the European Commission since last year. As a first step to restrain the rapid increase in energy prices, EU Member States deployed various measures at national level which the Commission provided through the Energy Prices Toolbox adopted in October 2021 and then expanded in spring 2022, with the Communication on short-term market interventions and long-term improvements to the electricity market design together with the REPowerEU Plan. However, despite these measures, the energy market situation kept on worsening as a result of Russia’s invasion of Ukraine, the weaponisation of its energy resources and due to extreme weather conditions caused by climate change.

To ease the increased pressure the current situation puts on European households and businesses, the Commission proposed on 14 September 2022 the Emergency Intervention Regulation. The draft Council Regulation was announced by the President of the European Commission during her State of the European Union address on 14 September 2022 and proposes an emergency intervention in the electricity market, with common European tools to tackle high prices and address imbalances in the system between suppliers and end-users of electricity, while preserving the overall functioning of the internal energy market and preventing security of supply risks.

The package of measures proposed through the Emergency Intervention Regulation includes three different measures:

(i) Reduction in demand for electricity

To target the most expensive hours of electricity consumption, when gas-fired power generation has a significant impact on the price, the Commission proposed an obligation to reduce electricity consumption by at least 5% during selected peak price hours. EU Member States will be required to identify the 10% of hours with the highest expected price and reduce demand during those peak hours. The Commission also proposes that EU Member States aim to reduce overall electricity demand by at least 10% until 31 March 2023.

(ii) Cap on market revenues for the generation of electricity from inframarginal technologies (renewables, nuclear and lignite)

The Commission proposed a temporary revenue cap on ‘inframarginal’ electricity producers, namely technologies with lower costs, such as 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. 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 proposes to set the inframarginal revenue cap at €180 EUR/MWh. This will allow producers to cover their investment and operating costs without impairing investment in new capacities in line with our 2030 and 2050 energy and climate goals. Revenues above the cap will be collected by EU Member State governments and used to help energy consumers reduce their bills.

(iii) Collection of a monetary solidarity contribution from the fossil fuel industry

The Commission also proposed a temporary solidarity contribution on excess profits generated from activities in the oil, gas, coal and refinery sectors which are not covered by the inframarginal revenue cap. This time-limited contribution will maintain investment incentives for the green transition. It will be collected by EU Member States on 2022 profits which are above a 20% increase on the average profits of the previous three years. The revenues will be collected by EU Member States and redirected to energy consumers, in particular vulnerable households, hard-hit companies, and energy-intensive industries.

The European Commission has based the intervention measures on Article 122 of the Treaty of the Functioning of the European Union which establishes a competence for crisis intervention in the energy sector. 

How can KPMG assist?

Should you like to further discuss the content and potential impact of the above case, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

Connect with us