Last week EU energy ministers reached a political agreement on a proposal for a Council Regulation to address high energy prices. The final text of the regulations has been published. The scope of the Regulation is four-fold:

1. To reduce electricity consumption during peak hours;
2. To introduce a cap on market revenues from the generation of electricity;
3. To enable Member States to engage in price setting for the supply of electricity for households and SMEs; and
4. To establish rules for a temporary solidarity contribution (at least 33 % of the base) from Union companies and permanent establishments with activities predominantly in the crude petroleum, natural gas, coal and refinery sectors.

Electricity demand reduction

The final text outlines an overall voluntary reduction target of 10% of gross electricity consumption and a mandatory reduction target of 5% of the electricity consumption in peak hours. Member States will identify 10% of their peak hours between 1 December 2022 and 31 March 2023 during which they will reduce the demand. Appropriate measures to achieve this are at the discretion of the Member State.

Cap on market revenues from the generation of electricity

The Council agreed to cap the market revenues at €180 per MWh for producers and intermediaries generating electricity from wind, solar, geothermal, hydropower, biomass fuel, waste, nuclear energy, lignite, crude petroleum products and peat. Member states agreed to use measures of their choice to collect and redirect the surplus revenues towards supporting and protecting final electricity customers.

Solidarity levy for fossil fuel sector

Member states agreed to set a mandatory temporary solidarity contribution on the profits of businesses active in the crude petroleum, natural gas, coal, and refinery sectors. The solidarity contribution would be calculated on taxable profits, as determined under national tax rules in the fiscal year starting in 2022 and/or in 2023, which are above a 20% increase of the average yearly taxable profits since 2018. The solidarity contribution will apply in addition to regular taxes and levies applicable in member states.

Retail measures for SMEs

The Council agreed that member states may temporarily set a price for the supply of electricity to small and medium-sized enterprises to further support SMEs struggling with high energy prices. Member states also agreed they may exceptionally and temporarily set a price for the supply of electricity which is below cost.

As part of his Budget 2023 address, the Minister for Finance announced the introduction of a Temporary Business Support Scheme to assist SMEs in meeting a portion of their energy costs subject to certain maximum limits. It remains to be seen how the retail measures agreed by the Council will interact, if at all, with the Temporary Business Scheme relief announced on Budget Day 2023. Further analysis on same will be made available in due course.

Application and next steps

While the text of the Regulation is prescriptive about certain measures, it gives good flexibility to Members States on certain matters.

The regulation was formally adopted as Council Regulation (EU) 2022/1854 under the written procedure on 6 October, published in the EU’s official journal on 7 October, and entered into force as from 8 October 2022.

The measures are temporary and extraordinary in nature. They will apply from 1 December 2022 to 31 December 2023. The reduction targets of energy consumption shall apply until 31 March 2023. The mandatory cap on market revenues shall apply until 30 June 2023.Should you have any questions on the Regulation or how it may affect you or your business, please do not hesitate to reach out to us.

For further information please reach out to your Deloitte contact or email IEKnowledgemanagement@deloitte.ie.