While the losers of the energy crisis wonder how they will get through the winter, the winners record jubilant annual figures. Oil and gas companies such as BP, ExxonMobil and Shell made mega profits of many billions in the past quarter alone, to the delight of their shareholders and the chagrin of many politicians.
The political reaction followed in the autumn: all those extra euros can also be taxed extra. If the government had to support the population with billions to pay for the high energy prices, a large part of the House of Representatives and then also the cabinet thought, then the companies that benefited from the high prices could cough up part of the bill.
Read also: The oil companies are pouring in the billions — and criticism is growing
Until recently, less attention was paid to another group of winners on the energy market: the producers of green energy. In the midst of this energy crisis, they too are showing profit figures that far exceed the results of recent years. And they too, just like their fossil colleagues, are now faced with a substantial additional tax, Minister for Energy and Climate Rob Jetten (D66) announced last week.
At first glance, this does not seem like a logical decision. After all, the high energy prices are primarily the result of the oil and gas market, which cannot cope with demand and has been disrupted by the pandemic and the Russian invasion of Ukraine. In addition, politicians worldwide have been repeating for months that the reality of the war has once again convinced them of the need for a rapid transition to renewable energy sources.
Nevertheless, green producers are also benefiting fully from the crisis, and that has everything to do with the peculiar functioning of the electricity market.
On the electricity market, every producer is paid the same amount for his electricity. The exchange predicts how much electricity will be needed, collects the prices that all producers ask for their energy and then sets a fixed daily price based on the last producer needed to meet demand. The most expensive power source therefore determines the electricity price. And that is coal and gas.
Electricity from wind and sun costs little to produce, but this system rewards it with the same price as electricity from a gas or coal-fired power station. For example, operators of solar parks and wind turbines can walk in now that the gas price has skyrocketed.
From subsidies to mega profits
The tax – formally the ‘inframarginal tax’ – also applies to nuclear energy, biomass and other power sources that benefit from the high market price. By taxing their excess profits, the cabinet wants to collect 1.8 billion euros, Jetten wrote on December 1 to the Chamber.
From that day on, the income of electricity producers above 130 euros per megawatt hour (MWh) will be subject to an additional tax for seven months. According to Jetten, that is already a considerable profit margin: before the war in Ukraine, prices between 40 and 70 euros per MWh were normal.
Investing in renewable energy is thus made completely unattractive
John Vos chairman NWEA
Some of the energy producers think otherwise. “Because our sector happens to be doing very well, it is immediately skimmed,” says Jan Vos. Vos is the chairman of the NWEA, the trade association that represents the wind sector. “We actually have the solution for the CO2making our energy supply neutral. As a government, you have to be careful with that.”
If renewable energy starts to dominate the market in the coming years, prices will plummet, Vos expects. That means less profit. If a tax is added now, investing in renewable energy will be made completely unattractive.”
Nevertheless, a temporary excess profit tax is perfectly justifiable in this case, says Frans Rooijers, energy researcher and director of research bureau CE Delft.
“These are sectors that have received substantial subsidies in recent years and are now making astronomical profits,” says Rooijers. Because the government guaranteed a minimum price for wind and solar in the start-up years to get investments started, the energy producers actually ran no risk. “Then it is normal that the government also asks for something in return if the profits are now so high.”
Like the excess profit tax for oil and gas companies, the levy for electricity producers is the result of a series of plans proposed by the European Commission in September to keep energy bills affordable. On the one hand with a price cap for consumers, on the other hand with additional taxes for producers.
After the announcement of their tax, which will also apply for 2022 and should raise 3.2 billion euros, oil and gas companies announced that they are considering legal action. Some of the wind companies that Vos represents are also considering this. He himself is particularly concerned about further plans by the Commission to curb the profits of his sector. “People think too easily: there is something to be achieved.”
The latter also causes some concern for Rooijers. “We really need to invest more, but the investment incentives will get worse in the near future. The subsidies that still exist now will expire in 2025. With regard to coal-fired power stations, the cabinet has already shown that it was able to change its position in a short time: they were first encouraged and then quickly closed.”
There is nothing wrong with this tax, says Rooijers, if the government does work on a good investment climate for the future. “As a result, companies dare to take risks. And then they can also have a good profit for a period of time.”
#Wind #solar #energy #quietly #making #mega #profits #due #energy #crisis #tax