Energy Price Caps

Context

The Energy (Windfall Gains in the Energy Sector)(Cap on Market Revenues) Act 2023  implements part of Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices, in particular that which requires a cap on market revenues of specific electricity generators. The Council Regulation also provides for a Temporary Solidarity Contribution based on the revenues from fossil fuel production and refining, which is contained in the Energy (Windfall Gains in the Energy Sector) (Temporary Solidarity Contribution) Act 2023, which commenced on 2 August 2023.

The main purpose of the Act is to fulfil Ireland’s obligations under the Council Regulation through the introduction of a cap on the revenues of specific electricity generators operating within the State and provide for the re-distribution of the collected funds back to consumers. The cap on market revenues will apply to non-gas electricity generators with a capacity of 1 Megawatt or more as follows:

• A cap of €120 per MWh for wind, solar and hydro based generators.
• A variable cap to fuel sources with variable cost structures, including biomass and peat.

• A cap of €180 per MWh on other non-gas generation such as geothermal, waste and lignite.

In the case that electricity suppliers can demonstrate that revenues in excess of the cap are already being passed on through lower prices to final consumers, those revenues will not be subject to the cap. The cap on market revenues will apply to revenue generated from December 2022 until June 2023 inclusive, as set out in the Council Regulation.

The Act, and the EU regulation on which it is based, are designed to provide assistance for final electricity consumers who have experienced exceptionally high energy prices, both as a result of the post-pandemic inflationary pressures and the energy-market implications of the Russian invasion of Ukraine in February 2022.

The Minister may mato Capke regulations and schemes as required in the Act and that these regulations will be laid before both Houses of the Oireachtas,

Liability to Cap

The Act describes the entities who are liable to make a payment under the Act, including producers, persons or bodies acting as intermediaries within the energy market and traders in the electricity market. It sets out the different fuel sources which are subject to the cap, such as renewable energy sources, petroleum products, peat and coal.

A body covered by the Act is responsible for making a payment in respect of the market revenue they have earned on a monthly basis. The various sources of energy are differentiated and are subsequently subject to varying levels of cap. The cap on market revenues will apply to non-gas electricity generators with a capacity of 1 Megawatt or more as follows:

• A cap of €120 per MWh for wind, solar and hydro based generators.
• A variable cap to fuel sources with variable cost structures, including biomass and peat.

• A cap of €180 per MWh on other non-gas generation such as geothermal, waste and lignite.

Electricity is generated using a variety of different fuel sources and only electricity generated using the fuel sources listed are subject to the cap. The final part of this section outlines some of the terms used in the section.

Calculation

The collection agent, EirGrid, establishes a website where it will publish the market index price which is the weighted average of the prices which are associated with two ex-ante electricity markets, in respect of each month. The two markets are the day-ahead market, where electricity is traded in 24 one-hour periods for the subsequent day and the intraday market where electricity is traded based on price fluctuations which occur within a single trading day. The Act also provides a definition for market index price.

The Act provides for the calculation of monthly market revenue, which is the quantity of electricity traded multiplied by the market index price on a monthly basis and it will be calculated by the producer, intermediary or trader. It provides for the calculation of monthly capped revenue, which is the amount of electricity traded in a month, multiplied by the level of cap for that particular type of electricity source.

Both monthly market revenue and monthly capped revenue refer to the relevant quantity, which is the amount of electricity traded in each imbalance settlement period, which refers to a half hour before and a half hour after, each hour of the relevant period. The formula used to calculate the relevant quantity uses the different quantities of electricity which have been bid on, as well as the band, meaning a range of price quantities which have been submitted and the imbalance settlement period, explained above.

There is a definition of preliminary surplus revenue. Preliminary surplus revenue is calculated as the monthly market revenue (as defined) minus the level of monthly capped revenue (also calculated). The adjusted surplus revenue takes into account the gains or losses from hedging arrangements, as well as any money owed by the producer, intermediary or trader between themselves. It represents the amount for which a person is liable to pay in respect of the market cap. Where the adjusted surplus revenue is negative, it shall be considered zero.

If the adjusted surplus revenue is zero, then no payment is required but if it is above zero then the relevant person must pay the full adjusted surplus revenue. If the adjusted surplus revenue has already been passed directly to final consumers (and demonstrated to the satisfaction of the Commission for Regulation of Utilities (CRU)), then this portion of the revenue does not need to be paid to the CRU.

All hedging arrangements must be accounted for in the calculation of all revenues. There are conditions which must apply for hedging arrangements to be considered, calculating the adjusted surplus and concludes with an explanation of some of the terms used in the section, such as affiliated person, contract for differences and directed contract.

Return

There are requirements of entities to provide a return in which they are to declare their fuel sources, production costs, monthly market revenue, level of cap, adjusted and preliminary surplus revenue, including any payments back to consumers, as well as any applicable resettlement and hedging arrangements. The return must also contain the relevant person’s reassessment of the adjusted surplus revenue due to resettlement which the person must pay to the collection agent or that the collection agent must re-pay to the relevant person.

The competent authority can request an outstanding return. A person who fails to comply with such a request shall be guilty of an offence. The competent authority may send the relevant person a notice requesting further information and the failure to provide such information shall be an offence.

The competent authority, where it appears to it that an assessment is not correct, may make a determination that a revised assessment is required. Time limits for responses are set out and failure to make a new return within the period specified is an offence.

A person who receives a notice may appeal the decision to the High Court within 8 weeks. The High Court has a number of options open to it, including to confirm the decision of the competent authority, set it aside and compel the competent authority to reconsider the decision or replace it with a decision made by the Court.

Payment and Recovery

An entity covered must pay their liability to the collection agent by 31 December 2023 and pay any balance due to a settlement rerun, hedging arrangement or power purchase agreement, on or before 31 August 2024 or 30 days after a date as may be prescribed. If, however, the revised assessment shows that the collection agent owes money to the person, this outstanding amount has to be paid in-line with the above dates.

If an entity is late in making their return or makes an error in their return then an additional charge shall accrue, and interest shall also be due on the additional charge. A person who fails to make a return or a revised assessment shall be liable to pay the collection agent, as well as the principal amount of the adjusted surplus revenue, interest on the amount until such a date that the amount is paid in full. There is a formula used to determine the rate of interest.

A person must retain all relevant records in regard to making a return and the details concerning such records. Failure to comply with this section shall be an offence.

The competent authority can appoint an inspector to confirm the details of the return and provide the competent authority with any necessary information.

Inspectors have the power to enter premises and take possession of any required documents or records, pertaining to the inspection. Obstruction or interference with an inspection is an offence and An Garda Síochána may accompany an inspector if required.

Market Cap Fund

The collection agent shall establish a fund, which shall be called the Market Cap Fund and shall ensure that all amounts paid to the collection agent, in respect of this legislation, are paid into the fund. The collection agent shall manage the funds and have overall control of them. It also lists the accounting obligations of the collection agent in this regard. There is a provision for the National Treasury Management Agency to perform this function if required. The Minister provides is to lay copies of the accounts to the Houses of the Oireachtas.

Money raised shall be paid out in accordance with a scheme detailed or to refund overpayments by producers, intermediaries or traders. The 2023 Act provides for the disbursement of money in accordance with Article 10 of the Council Regulation from the Market Cap Fund via scheme(s). It details the terms and conditions of the relevant scheme, such as the purpose of the scheme, persons who shall administer and qualify for the scheme, the duration of the scheme, matters of procedure and arrangements for review of the relevant scheme and the section concludes by stating that the breach of a provision of a scheme shall be an offence.

Offences, Penalties and Information Sharing

A person who provides information which is knowingly or recklessly false or misleading to the collection agent, the competent authority or an administrator of a scheme, shall be guilty of an offence. A summary conviction results in a class A fine or up to 6 months imprisonment and a conviction on indictment leads to a fine of up to €126,970 or imprisonment for a term of up to 5 years.

Summary proceedings for certain offences may be brought and prosecuted by the competent authority. A body corporate shall be guilty of an offence committed by a member of that body corporate.

The competent authority and the collection agent may share information with each other and with a relevant body, where necessary and proportionate. This information may include names and contact details, data meted by the system operator relating to connection to either the distribution system or the transmission system as well as commercial information.

The Minister may prescribe the relevant bodies with whom the information may be shared and will ensure that all information sharing occurs subject to the General Data Protection Regulation. The final part of this section outlines some of the terms used in the section.