It is clear that 2023 — with the ongoing war in Ukraine — is paving the way for a renewed emergency in security of supply and energy prices, and will test Europe’s leadership and unity.
We have seen the EU’s response shaped by concrete measures enabling both the acceleration of the energy transition and efficiency, as well as cutting down dependence on countries outside the single market.
There is an open path for these ambitious goals, driven largely by the immediate massification of renewable energies. This is the case of REPowerEU, aiming to accelerate the implementation of renewable energies and stepping up related gross final consumption in the EU from 32 percent to 45 percent in 2030.
These goals are an imperative. It will require a significant level of investment to take place fast, ensuring stability and predictability across the legal and regulatory framework. These should either be conducted as a collective effort with all stakeholders involved, or not at all.
Countries have been implementing measures in accordance with European guidelines — with a few exceptions.
Last October, the European Council approved an emergency regulation destined to tax energy companies on extraordinary profits, in order to address the short-term impact on consumer price. This effectively translated into capping revenues for inframarginal technologies at 180 €/MWh, on the basis that it would still promote the necessary incentives to invest in new, and much-needed renewable capacity.
This measure allows member countries some flexibility while drawing a line on the cap applied to the actual company revenue. Countries have been implementing measures in accordance with European guidelines — with a few exceptions.
Romania introduced a clawback mechanism to restrict the revenues earned by renewable energy producers and other market participants. However, it does not fully consider the financial hedges by investors under their risk management policies, therefore forcing investors to pay taxes on unrealized profits. It also imposes a withholding tax mechanism applicable to foreign counterparties bypassing international tax treaties. Regrettably, these distortions failed to be corrected despite repeated amendments to the law in Romania.
Poland approved a Law on Emergency Measures introducing a cap on renewable energy generators while ignoring financial hedges, unless the offtaker — the buyer — is a final consumer.
This type of measure is creating distortions in the market while violating the principle of not taxing unrealized profits.
As a result, renewable energy producers adopting best practices and selling forward their production at a fixed price (thus not benefiting from the market prices) are given no option but to return unrealized revenues at market prices. In fact, such companies are paying to produce clean electricity, operating at negative unitary margins.
Contrary to what was approved by the European Commission and member countries, this type of measure is creating distortions in the market while violating the principle of not taxing unrealized profits. It also hinders confidence in the market, dramatically affecting future investment plans in renewables, which are so urgently needed across Europe.
We believe it is important to redress this at a critical time for unity in Europe.
In this context, it is necessary to establish a meaningful dialogue to overcome an unfair and harmful environment for clean energy producers working hard on energy solutions for all.
It may well be an unprecedented energy crisis we are facing, but we must collectively reflect on the future we want for Europe. This is the time to act on the efforts to decarbonize the energy system. For decades, energy companies have invested heavily in renewables, committing their business strategy to the imperative of the energy transition while cutting back on Europe’s dependency from fossil fuels.
European wind and solar plants are a good example of progress and the good fight we’ve been putting so far. No battle can be won unless we all play on the same side.
