L R AS Published on Sunday 18 September 2022 - n° 416 - Categories:Europe

Rystad Energy does not believe in the Commission's levy base

By temporarily capping the income of sub-marginal electricity producers, the Commission's proposal captures the windfall profits of renewable energy producers,

which are benefiting from low production costs during this period of high electricity prices.

According to Rystad Energy, "around 60% of the total installed renewable energy capacity in the EU derives its revenues from fixed-rate contracts entered into well before the energy crisis, with prices generally lower than current spot prices."

See also: The Commission's measures according to Rystad Energy

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Only 40% of renewable energy producers would be affected

"The €117 billion indicated by the European Commission would come from a cap on revenues linked to the production of low-carbon and coal-fired electricity. However, the windfall profits described by the EU relate to only 40% of renewable energy producers".

"Claims that renewables are making windfall profits during the crisis are therefore more complex than the European Commission and others suggest. Targeting all types of plant with such an ill-adapted policy confuses the market and calls into question the effectiveness of the proposal. "

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The Commission has chosen an inappropriate measure

This measure risks sending out a warning signal to investors, who will scale back their development projects. The real problems should also have been tackled: the granting of permits, auction prices and support for the supply chain - as the United States has done.

The EU's intervention does nothing to solve the problem of the supply deficit in the medium and long term, when renewable energies are the only way to reduce dependence on gas.

Electricity prices have reached record levels in recent months, with an average of over €500/MWh in August, and record daily or weekly prices in excess of €700/MWh. As a result, the EU and its member states want to introduce a cap on renewable energy profits - proposed at €180/MWh, regardless of when in the market the company sells the electricity. The cap would apply to wind, solar, biomass, nuclear, lignite and certain hydroelectric power stations. Revenues in excess of the price cap will be redirected to the Member States and used to help households and businesses facing financial difficulties due to soaring energy bills.

See also: The Commission's measures according to PV Tech

The Commission's measures according to PV Magazine and SolarPower Europe.

RE producers have different support, subsidy and selection schemes

Since 2000, most European governments have introduced subsidy policies to encourage the development of renewable energies. These schemes, known as feed-in tariffs (FiT), feed-in premiums (FiP) and contracts for differences (CfD), were widely subscribed to by the first renewable energy developers, because they offered lucrative feed-in tariffs compared with average electricity prices.

Agreements signed at prices well below €0.18/kWh for 60% of installed capacity

These historic subsidies, which run for 15 to 25 years, now account for more than half of the EU's installed capacity. These subsidies are divided between the various schemes. Prices under these bilateral agreements are on average lower than current electricity prices.

Since 2015, power plants have been allocated by auction. Rystad Energy estimates that 17% of the total capacity installed today is subsidised by auction systems, particularly in Germany, Spain and France. In addition, power purchase agreements (PPAs) gained in popularity after 2010.

These contracts provide for fixed tariffs negotiated on the basis of market conditions at the time, and account for 11% of the total renewable energy capacity installed in the EU today. Finally, the remaining capacity (14%) receives income directly from the spot market. These may be power plants that started up in the early 2000s and for which the subsidy contract has since expired, or that have opted for the spot market market combined with a hedging strategy or, more recently, that have gambled on an electricity price high enough to achieve profitability.

Fixed income comes from fixed tariff contracts such as FiT, CfD or AAE and represents 60% of the total installed RE capacity in the EU, i.e. 170 GW, mainly distributed between Germany, France and Spain. Rising market prices benefit governments.

Market-based revenues come from FiP programmes, contracts concluded through auctions or subsidies.

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The Commission's cap creates confusion and sends a negative signal to the sector

"As the implementation of market management policies is by nature complex, the Commission's decision to propose a constant cap regardless of the types of revenue and the specificities of the market has led to a great deal of confusion as to its impact... This policy sends a negative signal to the sector. Once an intervention of this size and scope begins in a market as essential as energy, the impacts are innumerable and will probably require further interventions."

https://www.rystadenergy.com/news/eu-revenue-cap-helps-consumers-but-may-end-up-capping-europe-s-renewable-energy-a

Rystad Energy of 15 September 2022

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