Apologies have been received from Deputy Christopher O'Sullivan, for whom Deputy Seán Haughey will substitute.
This meeting is to conduct Committee Stage consideration of the Energy (Windfall Gains in the Energy Sector) (Cap on Market Revenues) Bill 2023. I welcome Minister of State at the Department of the Environment, Climate and Communications, Deputy Ossian Smyth. I invite the Minister of State to make some opening remarks.
I thank the Chairman for the opportunity to present the Energy (Windfall Gains in the Energy Sector) (Cap on Market Revenues) Bill 2023 to the select committee. The main pursuit of this Bill is to fulfil Ireland's obligations under EU Council Regulation 2022/1854 of 6 October 2022, on an emergency intervention to address high energy prices. It does this in accordance with Government decisions regarding the implementation of this regulation through the introduction of a cap on the revenues of specific electricity generators operating within the State. It provides for the redistribution of the collected funds back to consumers. This is an important piece of legislation that will provide for electricity consumers who have experienced exceptionally high prices, due to both ongoing post-pandemic inflation in energy market prices and as a result of the war in Ukraine. The intention is that the collection of the proceeds raised by the implementation of the cap on market revenues can then be distributed to alleviate some of this financial pressure on electricity consumers.
I thank all of the parties who helped draft this complex piece of legislation in a short timeframe. I also want to thank this committee for facilitating and expediting the process this year. As we move from the drafting stage to implementing this legislation with firms, I would like to specifically highlight the role of the Commission for the Regulation of Utilities, CRU, as the competent authority. The legislation is written to provide as much clarity and certainty as possible, but no legislation can ever be written to anticipate every potential scenario, and as such the CRU has been given significant powers of determination throughout the Bill, especially in sections Nos. 16, 17 and 18. This is to ensure the CRU has the authority to use its expertise and discretion on a case by case basis, engaging directly with firms as a designated competent authority under the European regulation. I welcome and look forward to the CRU's continued engagement with the sector in this regard. I advise that I do not propose to introduce any amendments today. I note that amendments have been tabled and I look forward to the debate.
I move amendment No. 1:
1. In page 9, between lines 19 and 20, to insert the following:
“Reporting on the use of proceeds from the cap on market revenues
6. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the application of, including the use of the proceeds from, the cap on market revenues.”
This amendment is self explanatory. It calls on the Minister, within six months of the passing of the Act, to prepare and lay before the Dáil a report on the application of, including the use of the proceeds from, the cap on market revenues. That will be a report on the implementation of this scheme, with particular reference to the use of the proceeds.
I absolutely support this and think it is a very simple measure that could be brought in. Indeed, it is one of the very few measures on which we can make amendments, so it would be a precedent if the Minister of State took it on board.
One of the issues I raised during the debate was the need for transparency on the profits that were being made by different entities, and something like that could be incorporated into this reporting. At the time of the debate in the Dáil, the Minister indicated that, or looked like, he was interested in that particular concept and perhaps might be open to amending the Bill to reflect that but, clearly, that has not happened, which is disappointing. People need to know how much these entities are making and it needs to be a very public and transparent process. I support Deputy O'Rourke's amendment in this regard.
I thank the Deputy for tabling the amendment. The proceeds from the cap on market revenues will be retained by the Commission for Regulation of Utilities, or EirGrid on its behalf, and it will be used to support final electricity consumers in line with Article 10 of the regulation. Since the regulation is in force, the proceeds must be distributed in accordance with that regulation.
Article 10 of the Council regulation details potential suitable measures, such as financial compensation and directed transfers to final electricity consumers, lowering the cost of purchasing electricity for energy consumers and promoting investment by final energy consumers into decarbonisation technologies, renewables and energy efficiency investments. It also states that member states shall ensure that all surplus revenues resulting from the application of the cap on market revenues are used to finance measures in support of final electricity customers that mitigate the impact of high electricity prices on those customers in a targeted manner. As such, the proceeds from the market are legally ring-fenced for final electricity consumers in line with the regulation via the market cap fund and that fund is administered by EirGrid with the support of the National Treasury Management Agency, NTMA. The Minister, with the consent of the Department of Public Expenditure, National Development Plan Delivery and Reform, will decide on the use of the proceeds gained from the cap on market revenues. The decision on the distribution of proceeds will be made publicly known.
With regard to the specific request or proposal in the amendment regarding specific reporting obligations, reporting is provided for in section 26(6) of this Bill. That section states that both the audited accounts and the report of the Comptroller and Auditor General will be laid before each House of the Oireachtas by the Minister for the Environment, Climate and Communications once they are received from the collection agent. I think that covers what is required or requested within this proposal and, as such, I do not propose to accept the amendment.
I move amendment No. 2:
In page 9, between lines 19 and 20, to insert the following:
“Reporting on the application of the cap on market revenues across Member States within the European Union
6. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the application of the cap on market revenues in Ireland in comparison with the application of the cap on market revenues in all other Member States within the European Union.”.
This amendment has a similar theme. It is important that it would be a useful and important measure to reflect the experience and application in Ireland compared to other countries. We are going to argue the toss about how this scheme should be designed. Hopefully, whatever way it is designed and implemented, we can all agree it is important that we can reflect the experience compared with other countries after the fact. Hence the proposal.
I thank the Deputy for the amendment. There has been significant diversity in the approach to the implementation of the market cap across the European Union. While some countries such as France and Spain have chosen slightly lower caps than us for renewable energy, others, such as Denmark, Belgium, Sweden and Austria, have chosen caps at higher levels. Several member states have also, like us, chosen different caps for different generation technologies. In appraising the policy options via a structured multi-criteria analysis, the caps that were chosen in this Bill were deemed appropriate to capture the windfall gains while maintaining positive investment signals.
With specific regard to the proposed amendment, the European Commission has already begun a process of review of the market cap measures in other European jurisdictions, and that report will be freely available online. In other words, it makes sense that the implementation of this regulation across different European countries is studied and compared, but I think it also makes sense that it is done by somebody who is independent of those member states. The fact that the European Commission is reviewing how the market cap has been applied in these different countries makes sense. It is also worth remembering that within the application of this regulation, a degree of freedom is given to countries to implement it in the way that they wish to, and because different countries have chosen different caps for different generation technologies, there will not be an exact comparison between one country and another. I look forward to seeing the analysis by the European Commission when that is online. For those reasons, I do not propose to accept the amendment.
I move amendment No. 3:
In page 11, to delete lines 10 to 13 and substitute the following:
“(a) €100 per megawatt hour for electricity produced from the source referred to in paragraph (a), (b) or (g) in section 7,
(b) €120 per megawatt hour for electricity produced from the source referred to in paragraph (d) of section 7,
(c) €180 per megawatt hour for electricity produced from the source referred to in paragraph (c), (f), or (h) of section 7, and”.
The effect of this would be to reduce the cap on wind and solar from €120 to €100. When we look at the cap for the REFIT scheme, for example, we have an assessment of what is a profitable point for wind and solar through REFIT and it is significantly below €120, so there is scope to go further on this while at the same time sending the signal and protecting the future viability of the sector. I note it is also the threshold that the French Government has applied in regard to wind, solar and nuclear. That is the rationale. I think there is scope to go further. This amendment would go further and raise a return for the Irish taxpayer which could then be used to support people over this winter and the time ahead.
I thank the Deputy for the amendment. As he can imagine, I too want to raise the maximum amount of revenue possible from this Bill. The rationale for setting a €120 MW/h cap is to maintain positive investment signals, and that is according to Article 8.2.(c) of the European Council regulation that we are implementing. We want to make sure that Ireland remains an attractive location for climate investment in order for Ireland to secure the investment required in renewable projects to meet our climate targets.
The price level of €120 MW/h is in line with the contracted strike prices under the renewable energy support scheme. This demonstrates that a double-sided contract for difference which involves payback when market prices exceed €1€20 MW/h does not hinder investment in wind generation. Coal, oil, peat, biomass and so on, by comparison, will experience no increase in unexpected revenue due to the variable cap proposed by the Department. The variable cap contained in Article 8.2.(c) would allow for a cost recovery to operate for the generation units and there will be a maximum marginal limit based on the historical average margin received from 2018 to 2021.
Following detailed discussion with a number of stakeholders, the Department is satisfied that the best available data was used to define windfall gains and to set an appropriate level of cap. For that reason, I do not propose to accept the amendment.
What point applies under the REFIT schemes?
Is it €120? Is it for wind and solar? That is essentially an assessment by the State and its agencies of the point at which renewables companies can make a profit.
Essentially, there are two basic contracts under which wind farms operate. One is the original idea, where there was a minimum guaranteed price provided under REFIT and they were guaranteed that no matter what happened they would get this much money per MWh. However, recently we have run renewable energy support scheme options where there is effectively a maximum price a wind farm can bid to say what they will gain as their income. The more recently contracted wind farms did not make money out of this. They were not able to charge excess profits in the way the older wind farms were. It is the older wind farms we are trying to catch on this. I say wind farms but it is also any type of generation that earned an unfair profit. If we try to raise so much money by setting a level to bring back as much windfall gain as possible from the companies, we can create a situation where the signal we have sent out to anybody who is bidding in the next renewable energy support scheme auction is that they have to set a higher price to cover that risk. We could end up paying by deterring investment. We must remember that we are in a Union of 27 countries and that those companies that we want to come to Ireland and invest to build wind farms can go and build them in any of those other countries. We have to find a balance between recouping the unfair profits that were generated by those companies and creating a situation where nobody wants to build a wind farm in Ireland again. We have set that, through analysis, at €120 per MWh or 12 cent a unit, which is not a large amount of money for a unit of electricity. That is the level we have set. Anything above that they will have to return to the State and the State will take that money and give it to electricity consumers in the form of targeted schemes such as increased fuel allowance, electricity credits or some other form of subsidy to people who use electricity.
I do not intend to extend this but the Minister of State has not answered the question of what the price is at REFIT. Is it €90? Is it €100?
It is €92 per MWh.
My argument here is that we need to get somewhere closer to between €120 and €92. I do not agree that making that move will do what the Minister of State is saying it will do, namely, scare the horses and drive people out of this country. Counter to the Minister of State's argument is the moral obligation to go further here and be fair and, as a consequence of that, raise greater revenues that can go into the pockets of people in need. I am glad the Minister of State confirmed that it is €92.
I thank the Deputy very much. We are having a discussion here and I am listening to him. In a recent debate he deplored that there were not a sufficient number of competitors in a renewable energy support scheme auction.
I was right.
He is therefore aware that attracting enough people at a reasonable price is an important thing and that there is a balance to be struck here. We need to decide how far we go in taking windfall gains away from companies and when we arrive at a point where nobody shows up for the next auction. That is the balance we need to meet between the two. It needs to be struck somewhere. I am saying €120 per MWh and the Deputy is saying it should be closer to €92, if I understand what he is saying. Is that right?
The Deputy can come in once more but then we will move on.
This is my very last point. I just feel I need to come back in. When I raised concerns about the outcome of the RESS 3 auction, it was not solely about price. Price is not the only signal. This is very dangerous territory to be in. There are fundamental issues in the renewables sector at the minute around planning, the grid and the design of auctions. Those are the fundamental issues that need to be gotten right here. Based on the Minister of State's logic, we would sell it at any price just to keep people in the market. That is a big risk and danger. I thank the Minister of State.
Price is a factor. However, it is not the only factor. Predictability of investment is a factor and Ireland, if we are not good at anything else, is certainly good at attracting foreign direct investment. We have extensive experience in that area. We also managed, at the same time as attracting foreign direct investment, to recoup large sums of money from those who have invested here and we will continue to do that.
We will leave it at that. Does Deputy O'Rourke wish to press the amendment?
I will press it.
Amendments Nos. 4 and 6 are related and may be discussed together. Amendment No. 6 is consequential to amendment No. 4.
I move amendment No. 4:
In page 12, lines 1 and 2, to delete “1 December 2022 and ending on 30 June 2023” and substitute “1 July 2022 and ending on 31 December 2024”.
The most egregious part of this legislation is that it is constrained to that period of 1 December 2022 until 30 June 2023. It is just that seven-month period when we have all seen the graph of wholesale gas and electricity prices and the massive spike or bonanza in profits for renewables companies, in particular, that happened at the back end of last summer. Other countries have extended such schemes further back retrospectively. This is already a retrospective measure given the fact that the period up to 30 June has passed. I am proposing to capture those super excess profits from last summer and that the scheme be extended back to 1 July 2022 and extended at the other end, although we are less concerned about that, to 31 December 2024, as other countries have done.
This is a fair question to raise and a good thing to discuss. The cap on market revenues is going to operate from 1 December 2022 until 30 June 2023. That is set out in the European Union regulation, which states that a set of measures should be urgent, temporary and exceptional. The regulation does not provide for the cap to extend to periods after this period or before this period. The Department received legal advice as regards applying the cap beyond December 2022. That advised that where the State departs from the regulation, those aspects will be more vulnerable to legal challenge on the grounds of retrospectivity and interference with Irish constitutional rights such as property rights and retrospectivity, which are specifically referenced in the Irish Constitution. At European level, the European Commission decided not to extend the cap on market revenues, citing concerns for regulatory uncertainty, incentives for new investment, high administration costs, reduced production by generators and potential interference with electricity market design. The Parliament will not be extending the cap on market revenues as a national measure and I do not propose to accept the amendment.
That comes as no surprise but it is deeply disappointing. Coupled with the earlier amendments we moved on the price threshold or cap, when we look at what other countries have done on this, it really reflects a very soft windfall tax. Just by the measure of fairness and moral responsibility, this falls short. We should look at what other countries have done. We discussed this on Committee Stage of the original Bill. We can do this. Other countries have done it and while it may be outside the scope of this Bill, it is certainly within the competence of Government to go further. It is been clear from the Minister of State and from the senior Minister when he dealt with this that the Government was not keen to do it. That is most regrettable.
I fully support this amendment as well. It is an issue I raised in the Dáil with the Minister of State. The timeframe is way too short and is not going to capture comprehensively the absolutely obscene profits made during that period. I note the Minister of State has said he received legal advice prior to December 2022, on extending that period. The legal advice specified that it was an issue of retrospectively applying a measure like this. Did he also seek legal advice about extending it beyond June 2023? Obviously, those concerns about retrospective issues would not apply going forward.
We asked for advice on extending the term in either direction. Our constraint is constitutional. Other countries do not have Bunreacht na hÉireann. They have their own constitutional arrangements to make their laws compliant. It is not just the retrospectivity. It is also about property rights within our Constitution, which are very strong. There is a different set of circumstances in other countries. The EU's recommendation for those had considered both before and after, and for a range of reasons chose not to extend it either later or earlier than that time period.
Does Deputy O'Rourke wish to press the amendment?
I do.
I move amendment No. 5:
In page 29, lines 17 to 19, to delete all words from and including “prescribe” in line 17 down to and including “with,” in line 19 and substitute the following:
“prescribe a scheme for the due disbursement of amounts from the Fund for the purposes of lowering the electricity purchase costs to final domestic electricity customers, in accordance with”.
I will withdraw this amendment because the Minister addressed some of these issues in an earlier contribution and suggested that an amendment might be introduced in the Seanad. On that basis, I am happy to withdraw it at this stage.
Amendment No. 6 in the name of Deputy O'Rourke was consequential on amendment No.4, so it cannot be moved.
