Energy emergency measures – electricity revenue cap in the Netherlands

• Netherlands

• Energy crisis – business resilience

26-01-2023

In November 2022 the Dutch government announced its plans for the implementation of EU Regulation 2022/1854 regarding energy emergency measures. The most important part of the plan is a price cap for producers of energy at EUR 130 per MWh. The revenues of the producers will be calculated based on monthly average prices (as opposed to hourly rates for example) irrespective of whether it is within peak hours or not. Above the 130 MWh threshold the revenues of electricity producers are taxed at 90%.

There are a number of exceptions which are described below.

Scope of the measure

The price cap will apply to electricity production installations with a minimum capacity of 1 MW and does not differentiate between technologies (e.g. nuclear, wind, solar, hydro, waste), except for electricity produced by biomass and electricity produced by coal, for which specific rules will be introduced as set out below.

It is expected that the price cap will be applied for the period of 1 December 2022 until 30 June 2023, but based on the EU Regulation it is possible that this term is extended.

Biomass and coal

The price cap will be higher for electricity produced from biomass at EUR 240 per MWh. The reason is that producers of biomass electricity have indicated that at EUR 180 per MWh they would be compelled to produce less energy as this would mean that they would have to produce at a loss, among others because of the high price of biomass feedstock.

For coal fired production installations a flexible price cap is proposed which will change in accordance with the marginal costs for coal. The reason for this deviation is an earlier measure implemented by the Dutch government which withdrew the production limitation for coal fired production installations in an attempt to reduce the production of electricity by means of (expensive) gas fired production installations. With the flexible cap, the aim is to prevent coal fired plants scaling down production.

What revenues are counted towards the price cap?

The price applies to revenues and not to profits. The EU regulation on which the Dutch measure is based furthermore states that the cap should only apply to revenues that are actually realised on the energy market. This means that revenues which are hedged against price alterations on the wholesale energy market are not relevant for the price cap.

Exceptions

Apart from coal and biomass, two other exceptions exist with regard to the price cap, this concerns:

• production installations which have been awarded SDE subsidies with a basic amount higher than 130 MWh. For such installations the higher amount based on the SDE subsidy will be applicable; and
• revenues from re-dispatch and balancing market activities are exempted from the price cap (although this can change at a later stage).

How will revenues above the price cap be levied?

It is intended that producers must calculate and declare the revenues in excess of the price cap themselves similar as with VAT returns. The tax must be paid at once for the entire time the price cap applies (which is currently seven months).

Entry into force

The final legislative proposal has not been completed yet and is expected to be sent to Parliament in March 2023. Entry into force is envisaged on 1 July 2023 and as of that moment the measure will have retroactive effect to 1 December 2022.