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 in the shape of concrete measures, which have accelerated both the energy transition and efficiency, as well as reduced dependence on countries outside the single market.
There is an open path to these ambitious goals, driven largely by the immediate large scale of renewable energy. This is the case of REPowerEU, which aims to accelerate the implementation of renewable energy and increase the corresponding gross final consumption in the EU from 32 percent to 45 percent in 2030.
These goals are essential. This will increasingly require a significant level of investment to ensure stability and predictability in the legal and regulatory framework. These should either be organized as a collective effort with all stakeholders involved, or not at all.
With a few exceptions, countries are implementing measures in line with European guidelines.
Last October, the European Council approved an emergency regulation intended to tax energy companies on extraordinary profits, to address the short-term impact on consumer prices. This effectively translated into capping revenues for inframarginal technologies at €180/MWh, on the grounds that this would still spur the necessary incentives to invest in new, and much needed, renewable capacity.
This measure allows member states some flexibility when drawing a line on the limit applied to real company revenue. With a few exceptions, countries are implementing measures in line with European guidelines.
Romania introduced a clawback mechanism to restrict the revenue earned by renewable energy producers and other market participants. However, it does not fully consider financial hedges by investors as part of their risk management policies, therefore forcing investors to pay tax on unrealized gains. It also enforces the tax regime applicable to foreign counterparties, bypassing international tax treaties. Sadly, despite repeated amendments to the law in Romania, these distortions could not be corrected.
Poland approved a law on emergency measures capping renewable energy generators unless the offtaker – the buyer – is an end consumer, ignoring financial hedges.
Such a measure is creating distortion in the market by violating the principle of non-taxation of unrealized profits.
As a result, renewable energy producers have been given no option but to return unrealized revenue at market prices by adopting best practices and to further sell their production at a fixed price (thus not benefiting from market prices). In fact, such companies are getting paid to produce clean electricity, operating at negative unitary margins.
Contrary to what has been approved by the European Commission and the Member States, this type of measure is creating a market distortion, in violation of the principle of not taxing unrealized profits. It also disrupts market confidence, dramatically affecting future investment plans in renewables, which is urgently needed across Europe.
We believe it is important to redress this at this critical time for unity in Europe.
In this context, it is essential to establish a meaningful dialogue to overcome the unfair and harmful environment for clean energy producers working hard on energy solutions for all.
It may be an unprecedented energy crisis we are facing, but we must collectively reflect on the future we want for Europe. It is time to act on efforts to decarbonize the energy system. For decades, energy companies have invested heavily in renewable energy, tailoring their business strategy to the imperative of the energy transition while reducing Europe’s dependence on fossil fuels.
European wind and solar plants are a fine example of the progress and the good fight we are still fighting. No battle can be won unless we all play on the same side.