On 8 October 2022, Council Regulation (EU) 2022/1854 of 6 October 2022 on emergency intervention to address high energy prices entered into force. The recitals to the Regulation state that its adoption was dictated by the very high electricity prices observed since September 2021, mainly due to the high price of gas needed to generate electricity. Reduced volumes and uncertainty in the supply of natural gas, but also of other raw materials, following the war in Ukraine are the reason for the unprecedented price increase.
The subject of the Regulation are exceptional, targeted and time-limited measures “to mitigate the effects of high energy prices through exceptional, targeted and time-limited measures. Those measures aim to reduce electricity consumption, to introduce a cap on market revenues that certain producers receive from the generation of electricity and redistribute to final electricity customers in a targeted manner, to enable Member States to apply measures of public intervention in the price setting for the supply of electricity for household customers and SMEs, and to establish rules for a mandatory temporary solidarity contribution from Union companies and permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors to contribute to the affordability of energy for households and companies”.
Pursuant to Article 4 (1), each Member State shall define peak hours corresponding to a total of at least 10% of all hours during the period between 1 December 2022 and 31 March 2023 and shall undertake to reduce its gross consumption during the defined peak hours by at least 5% on average per hour.
The measures the State takes to meet this target are left to its discretion and must be “clearly defined, transparent, proportionate, targeted, non-discriminatory and verifiable”, as well as meeting the conditions laid down in Article 5 of the Regulation. In this regard, the Bulgarian government, in the person of Deputy Prime Minister Hristo Alexiev, has stated that it has developed a mechanism for energy offsets and their financing in a draft law implementing the European regulation to tackle high energy prices.
Cap on market revenues
In Article 6 (1), the Regulation sets the market revenue cap at EUR 180/MWh, with the aim of mimicking the market outcomes that producers could have expected if global supply chains had operated normally without gas supply disruptions since February 2022. The cap includes “a reasonable margin, from the current total average LCOE for the relevant generation technologies, and allows the covered generators to recover their investments and operating costs.”
An interesting point is made in the second paragraph of Article 6, namely that, in addition to generators, the cap may also apply, as appropriate, to intermediaries participating in wholesale electricity markets on behalf of generators.
Recitals 40 and 41 state that, due to the significant differences in the generation mix and the cost structure of electricity generation in the Member States, it should remain possible for the Member States to further limit the revenues of the generators to which the cap on market revenues applies and to set a specific cap on market revenues derived from the sale of coal-fired electricity, the price of which may be significantly lower.
This discretion is reflected in the provision of Article 8 of the Regulation, which gives Member States a wide margin of discretion to differentiate measures and to introduce additional ones, as long as they are compatible with Union law.
It is possible to temporarily set a below-cost price for electricity not only for household consumers and micro-businesses, but also for small and medium-sized enterprises, by way of derogation from Union rules, as long as the conditions of the Regulation are met, namely that there is no discrimination between suppliers and that they are compensated by having the right to submit bids for the supply of electricity at a below-cost price, on the same basis. It is also imperative that the measure applies to limited consumption and retains an incentive to reduce demand.
Mandatory temporary solidarity contribution
The solidarity contribution is due for excess profits generated by Union companies and establishments active in the crude oil, natural gas, coal and refining sectors, unless Member States have adopted equivalent national measures which have similar objectives and are subject to similar rules.
The contribution shall be calculated on the taxable profits, determined in accordance with national tax rules, in the tax year 2022 and/or the tax year 2023 and for their entire duration, which exceed by more than 20% the average of the taxable profits, determined in accordance with national tax rules, in the four tax years beginning on or after 1 January 2018. The Regulation sets the rate applicable for the calculation of the solidarity contribution at at least 33% of the taxable base. The solidarity contribution applies only to excess profits generated in those tax years.
The funds obtained from the solidarity contributions of the obliged parties shall be used for one of the purposes set out in Article 17 of the Regulation, e.g. financial support to final energy customers, in particular vulnerable households, financial support to assist companies in energy-intensive industries, subject to a requirement to invest in renewable energy, energy efficiency or other decarbonisation technologies, etc.
The Bulgarian State should implement this Regulation by further developing its provisions and providing for additional measures to reduce the financial pressure on final consumers. The specific measures should comply with European requirements and the mechanism for their implementation should involve minimum delay.