German green energy service provider LichtBlick has termed the European Commission's (EC) proposal to cap revenues of renewable energy generators at €180 per MWh as 'illegal' and something that would slow down their expansion, after it sought legal opinion from business law firm Raue on the subject.
The 'revenue skimming' 'violates EU (European Union) law', according to LichtBlick. "We need effective crisis management, but not at the expense of security of supply and at the expense of renewables," said Markus Adam, Chief Lawyer at LichtBlick. "A revenue cap would noticeably slow down the urgently needed expansion of renewables."
As per the report written by Raue for LichtBlick, the EC regulation cannot be based on exceptional provision for crisis prevention as it doesn't fall into the area. It violates the principle of subsidiarity and that the regulation could easily be circumvented and 'would come to nothing'.
The move also interferes with the fundamental freedoms of the EU Treaty and endangers the security of supply in the European power grid.
Instead, the law firm recommends slapping a short-term price cap on imported gas which it says will be far more effective and legally feasible. Another analysis by Aurora Energy Research commissioned by LichtBlick also believes the wholesale electricity prices can come down by up to half with this measure, depending upon the level of upper limit.
LichtBlick also suggests the commission can also introduce a one-off, moderate excess tax profit, currently planned for fossil fuels, can be introduced for electricity producers instead of the 'illegal revenue cap'.
"Instead of the necessary boost, the illegal proceeds skimming that is now planned will counteract the expansion of renewables – and is therefore ultimately detrimental to the protection of end consumers," added Adam.
Earlier basis a survey of developers it held, renewable energy online marketplace and procurement platform LevelTen Energy said the arrangement will not impact most existing long-term power purchase agreements (PPA). However, the fact that the regulation leaves it to the member states to determine whether they will apply the regulation when the settlement of the exchange of electricity takes place, or thereafter, that's concerning.
"And that little detail is crucial for baseload PPAs, which accept that the intermittent nature of the resource implies hours with deficit and surplus of energy, to be balanced in the market," stated LevelTen.
On how this will affect short-term PPAs, LevelTen explained, "If the short-term PPA has a price higher than 180€/MWh, contracts will likely be renegotiated leveraging "change in law" or "force majeure" clauses. That's because the contract would no longer be reasonable when the offtaker is paying one amount while the generator is receiving a different amount."
It also added that since the cap is supposed to be imposed on a temporary basis, if the project is not expected to reach commercial operation until 2024, it might not be impacted at all, but those that are nearing commercial operation date (COD) will be most impacted. Details of the survey are available on LevelTen Energy's website.
Background
Here's the context for those not well-versed with the revenue cap matter. In September 2022, the EC proposed capping revenues of infra-marginal producers (read renewable energy, nuclear and lignite companies) at €180 per MWh on a temporary basis, as part of emergency intervention measures to bring down elevated energy prices and limited electricity supply (see EU Proposes Capping Revenues Of Renewable Producers).
European solar PV lobby association SolarPower Europe (SPE) said it was 'deeply concerned about patchwork implementation' of the emergency intervention from the EC to address high energy prices. It recommended all member states to stick to a EU level cap of €180 per MWh, apply the same on net market revenues only, and collect revenues on a monthly portfolio basis.
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