Ref. Ares(2022)3758527 - 18/05/2022
Ref. Ares(2023)20334 - 03/01/2023
Application to the Italian case of the EC’s “Guidance on the application of infra-marginal profit fiscal measures”
Comments on the Italian case
Subject
Provision of Annex II of EC’s Communication
(green : criteria met / red : criteria not met)
The duration of the measure should be limited and tied to a specific crisis Winter 2022 (from 01 10 2021 till 31 03 2022) vs Winter 21 (01
Duration
situation.
10 2020 – 31 03 2021).
The measure should not affect the formation of wholesale electricity prices
based on marginal costs expressed by the merit curve, hence preserving the
Impact on price
Considering the taxable basis and its timing the measure does
efficiency of price signals for short-term operational decisions. In case of any
formation
not impact the wholesale prices.
doubt, lower levels of excess gains should be clawed back to avoid impacts on
price formation.
Long-term price trends resulting from structural market developments and
the carbon price signal from the EU ETS should not be affected. This is so as The current proposal fails to acknowledge its impact on the
Long-term price
not to interfere with long-term price signals that contribute to the coverage of capabilities of targeted companies to develop further investment
signals
fixed and investment costs, incentivizing investments in capacity needed for a projects in renewable projects.
decarbonized and reliable power system.
The 10% threshold does not allow to take into account the
It has to be noted that some of the increase in global gas prices has a structural component since an undertaking exceeding the 10%
structural component (which could be defined on the basis of average prices increase is taxed on the whole increase without any deduction.
Structural component
over time). The tax should not deal with the effects of this structural In addition, there is no difference between an increase of the
component.
volume and an increase of the price, while the purpose of the law
is to address only price increase.
The method for the calculation of rents that are to be considered ‘excessive’ –
linked to the specific crisis environment - and the trigger/deactivation
mechanisms would have to be clearly specified and justified. To avoid any
arbitrary use that would result in heavy distortions, the ‘windfall profits’ The current proposal used an objective criterion but not directly
Method for the
and the “trigger/deactivation” mechanism would have to be defined on the linked to additional profits that would have been generated by
calculation of rents
basis of objective and verifiable criteria and events. These could for example higher energy prices as it is using an inappropriate proxy for this
the deviation from an average of global gas prices over a sustained period of purpose.
time and the number of hours that gas sets the price in the electricity system.
The duration of the tax should be also clearly limited in time, not going beyond
30 June2022, on the basis of these well-defined criteria.
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The current proposal does not take into consideration the way
The additional infra-marginal rents should be clawed back only in the time the power is produced and the nature of the plant in the merit
Additional infra-
periods when gas plants were marginal and to the extent that such additional order. No link with infra-marginal units operating and nor with
marginal rents
infra-marginal rents were effectively earned by infra-marginal units.
the hedging practices of the utilities. Therefore this criteria is not
met.
No distinction
The measure should not distinguish different generation technologies. It
between different
should include any infra-marginal units operating in the hours of application of
Idem
generation
the tax, e.g. infra-marginal rents from hard coal and lignite-fired generation,
technologies
renewables (including hydropower) and nuclear.
The measure should equally apply to all generators regardless of whether they
are covered by support schemes or capacity remuneration mechanisms.
However, it should be taken into account that some support schemes by
Support schemes
their nature already avoid (feed-in tariffs), capture (two-way contracts for
This criteria is met.
difference contracted before the gas price crisis) or reduce (floating premiums)
infra-marginal rents in periods of high prices. The specific situation of fixed
premium could be addressed, which can increase infra-marginal rents.
This warning underlines the need to look at the actual business
The measure should not be retroactive and should only claw back a share of model of the energy company to limit the tax to genuine windfall
profits that were actually made. Thus, it needs to take into account that profits. By excluding from the computation of the taxable basis
generators may have sold part of their production forward at a lower price
Retroactivity
the financial hedges (swaps, futures …) of an operator, there
before the crisis began. Energy which has not profited from higher electricity might be a significant distortion between the actual profits of the
market prices because it was already sold forward should be exempted from company and the deemed windfall profits assessed by the new
claw back measures.
law.
Revenue from the measure should be passed on to households or in non-
selective and transparent measures supporting all final consumers (e.g. an
Revenues
It is the objective of the measure.
explicit separate discount on electricity bills of final customers proportional to
their average daily or weekly consumption).
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