Position paper on draft Council Regulation proposing a price cap on electricity producers’ market revenues COM(2022)473
On 14 September 2022, the European Commission came with emergency electricity market intervention measures. This position paper provides technical input on one specific aspect of that proposal, the inframarginal revenue cap, as defined in section 2 (art. 6 – 10).
- The proposed measure is not addressing the root cause of the energy price crisis: high gas prices.
- The proposed measure is based on the misconception that electricity producers are all exposed to high spot prices on the day-ahead markets, while most production (in particular inframarginal production) is sold forward for hedging purposes aimed at reducing the price risk of the portfolio.
- The proposed measure will therefore have a very limited impact in terms of collected revenues, while further fragmenting the internal energy market, triggering important implementation challenges & requiring costly adaptations of IT & administrative processes.
- To limit market distortions, the proposal should be adapted as follows:
- Restrict the possibility for Member States to extend or introduce similar measures and/or extend the list of eligible technologies; retroactive measures should be specifically prevented.
- Task the European Commission to assess existing measures and their compliance with the Regulation
- Take into account the complexity of estimating “market revenues” to ensure a correct implementation of the price cap:
- Consider all revenue streams across timeframes ( day ahead and intra-day markets, balancing markets, settlement of physical and financial instruments with different maturities, across transactional instruments (including but not limited to forward/future physical/financial hedging, OTC contracts, long-term bilateral contracts, internal transactions, proxy hedging, sales to end customers or retailers, PPAs etc.) and taking into account the diversity in corporate structure and different jurisdictions
- Estimate the average net market revenue value over a given time period (minimum one month or ideally the foreseen delivery period of the measure) as a result of all electricity physical and financial transaction for that given period and apply the cap accordingly.
- Provide guidance on how to implement the measure on a portfolio hedging structure to avoid patchwork approach while allowing for sufficient flexibility to adapt to the different national and corporate realities: a system based on a self-assessment/declaration of the electricity producers and audit by NRAs is the way to go.
- Exempt from the scope of the measure technologies with high variable costs (biomass, oil, lignite) above the cap to avoid significantly distorting the merit order and endangering security of supply
- Ensure that suppliers are fully and timely compensated when offering regulated retail prices below cost to fully cover suppliers’ financial exposure
- The proposed measure creates huge political uncertainty for investments & jeopardizes achievements of EU decarbonization targets
- The asymmetry of treatment of exceptional revenues from electricity producers vs. oil, coal, gas and refinery sectors is regrettable