Authors
Since the publication of our recent client alert outlining the energy policies (in particular, policies in the oil, power and gas sectors) proposed by the UK, the EU, certain individual EU member states and the G7, a number of new policies have been introduced, as outlined below.
Again, this update is not intended to be an exhaustive list but instead, a high-level summary of headline policies. If you would like any further information regarding specific policies outlined below, please get in touch, and we will be happy to assist.
UK
- The UK government will provide a discount on wholesale gas and electricity prices for all non-domestic customers under its Energy Bill Relief Scheme. The government has set a ‘supported wholesale price’ – expected to be £211/MWh for electricity and £75/MWh for gas – which is a discounted price per unit of gas and electricity (equivalent to the wholesale element of the energy price guarantee for households). It includes the removal of green levies paid by non-domestic customers who receive support under the scheme. The level of price reduction for businesses will vary depending on contract type and circumstances. Customers do not need to contact suppliers or apply to the scheme to access the support – support (in the form of a p/kWh discount) will automatically be applied to bills.
EU
The European Council has approved the following measures (with a formal regulation to be adopted by written procedure in the coming days). Note that the below measures will apply from 1 December 2022 to 31 December 2023, save that the electricity demand reduction will apply until 31 March 2023, and the mandatory cap on market revenues will apply until 30 June 2023.
- A voluntary overall reduction target of 10 per cent of gross electricity consumption and a mandatory reduction target of 5 per cent of gross electricity consumption during selected peak hours (covering at least 10 per cent of the hours of each month where prices are expected to be the highest) have been introduced. Member states will identify 10 per cent of their peak hours between 1 December 2022 and 31 March 2023, during which they will reduce demand. Member states will be free to choose the appropriate measures to reduce consumption for both targets in this period. Note that Cyrus and Malta are exempt from the mandatory reduction during peak hours target.
- Market revenues are to be capped at €180/MWh for electricity generators, including intermediaries that use inframarginal technologies to produce electricity, such as renewables, nuclear and lignite. Note that gas-fired power plants will be exempt from this market price cap. If a member state’s net import dependence is equal to or higher than 100 per cent, it must conclude an agreement by 1 December 2022 to share the surplus revenues adequately with the exporting member state. A market price cap for gas has not been proposed at EU level.
- A mandatory temporary solidarity contribution on the profits of businesses active in the crude petroleum, natural gas, coal and refinery sectors has been introduced. The solidarity contribution is to be calculated on taxable profits (as determined under national tax rules) in the 2022 or 2023 fiscal year which are more than 20 per cent higher than the average yearly taxable profits since 2018. The solidarity contribution will apply in addition to regular taxes and levies applicable in member states. Proceeds from the solidarity contribution must be used to provide financial support to households and companies and to mitigate the effects of high retail electricity prices. Note that member states can retain national measures that are equivalent to the solidarity levy provided they are compatible with the objectives of the regulation and generate at least comparable proceeds.
- 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 may exceptionally and temporarily set a price for the supply of electricity at below cost.
Croatia
- The European Commission has approved, under EU state aid rules, a €19.8 million Croatian aid measure in favour of energy storage operator IE-Energy in a series of grid-connected projects aimed at modernising Croatia’s energy network and increasing energy security.
Czech Republic
- The European Commission has approved, under the Just Transition Fund Programme, €1.64 billion in EU grants to support the Czech Republic’s efforts to phase out coal-fired power by 2033 and to increase energy security.
France
- The government has introduced an energy-saving initiative to reduce the country’s reliance on Russian gas and to push the country closer to the EU target of reaching climate neutrality by 2050. To mitigate against gas or electricity shortages in the coming winter months, the government has set a target of cutting energy consumption by 10% by 2024 from 2019 levels through energy-saving measures such as reducing energy consumption in public buildings by limiting heating and hot water, banning lit advertising overnight, and a new ‘every gesture counts’ awareness campaign.
Germany
- The gas levy ordinance has been annulled by the German government with retroactive effect from 9 September 2022.
- VAT on gas will be reduced to 7 per cent from 1 October 2022.
- Both a temporary gas price brake (Gaspreisbremse) and electricity price brake (Strompreisbremse) are to be introduced. Both measures seek to benefit private and corporate end consumers, but will only subsidise ‘basic consumption’ (which is yet to be defined). Beyond basic consumption, prices will remain unaffected (i.e., the market price will apply). The electricity price brake will partly be financed through windfall profits from electricity producers (details yet to be confirmed). Note that an equivalent measure has not been proposed for the gas market.
- The government’s Economic Stabilisation Fund is to be increased by €200 billion, to support households and industry, including financially distressed gas importers (such as SEFE and Uniper). Note that this has been met with considerable opposition throughout the EU (in particular from Italy, France and Hungary). Those condemning the package claim that it falls foul of EU rules on state aid and puts households and companies in the rest of the bloc at risk of paying higher energy prices. Instead they call for a more co-ordinated response across member states, including a bloc-wide ceiling on the price of gas – a measure Germany has objected to.
Netherlands
- From 1 January 2023, household and other small-scale consumer (including small and medium businesses) energy prices will be capped at €0.40/kWh of electricity and €1.45/m3 of gas up to a maximum of 2,900 kWh and 1,200 m3, respectively.
- The 9 per cent VAT rate (reduced from 21 per cent) applied to the supply of energy will expire on 31 December 2022. As from 1 January 2023, the 21 per cent VAT rate will apply again.
- The current reduction of excise duties on unleaded petrol, diesel LPG and LNG will be extended to 30 June 2023. The rate will then slowly increase over the period 1 July to 31 December 2023.
- The proportion of CO2 emissions in respect of which industrial companies are exempt from tax will be reduced from 1 January 2023 – the amount of dispensation rights available will be reduced by applying stricter benchmark values under the EU Emissions Trading System and a lower reduction factor.
- In addition to the tightening of the current CO2 levy, the government proposes to introduce a minimum CO2 price for industrial companies. The minimum price will be set at €16.40 in 2023, with this price incrementally increasing to €31.90 per ton of CO2 in 2030.
- The government is expected to publish a proposal to temporarily increase the mining levy payable by extraction companies in the oil and gas sector, for the years 2023 and 2024. This temporary levy aims to tax revenues from the sale of natural gas at a price exceeding €0.50/m3.
- The annual budget for the government’s Energy Investment Allowance and Environmental Investment Allowance will be increased from €149 million to €199 million and €114 million to €174 million, respectively.
Romania
- The European Commission has approved, under EU state aid rules, a €390 million scheme (which will run until 30 June 2024) to support the production of electricity and heat from high-efficiency cogeneration installations connected to district heating networks in Romania. In particular, the scheme will promote the construction of new high-efficiency plants, as well as the transformation of existing plants from being powered by coal to being powered by natural gas.
Client Alert 2022-348