President of the European Commission Ursula von der Leyen gestured at a press conference on energy in Brussels, Belgium, on Wednesday, 7 September. Von der Leyen said the European Commission is proposing that a share of the excess profits of energy companies be channelled to support businesses and consumers struggling with high energy prices. (Kenzo Tribouillard – AFP / Lehtikuva)


THE EUROPEAN COMMISSION has unveiled its expected proposal to assuage the situation of businesses and households struggling to cope with high energy costs by, for example, limiting the profits of energy companies on a temporary basis.

President of the European Commission Ursula von der Leyen on Wednesday pointed out that some energy companies have been able to generate substantial profits because energy prices are defined by the most expensive method of generation – natural gas, the price of which has been manipulated by Moscow.

Hydropower and wind power, for example, have been more affordable to produce.

“We will propose a cap on the revenues of companies that are producing electricity with low costs. Low-carbon energy sources are making in these times – because they have low costs but they have high prices on the market – enormous revenues,” stated von der Leyen.

“These revenues do not reflect their production costs. So, it is now time for the consumers to benefit from the low costs of low-carbon energy sources like […] renewables. We will propose to re-channel these unexpected profits to member states so that the member states can support the vulnerable households and vulnerable companies.”

The European Commission is proposing that a limit be imposed also on the profits of fossil fuel companies and that the excess profits be funnelled not only to support vulnerable businesses and households, but also to invest in clean home-grown energy sources.

“Oil and gas companies have also made massive profits. Therefore, we will propose that there is a solidarity contribution for fossil fuel companies,” said von der Leyen.

Pekka Salomaa, the director of energy markets at Finnish Energy, on Wednesday told Helsingin Sanomat he recognises the pressure to adopt measures to help consumers amid the high energy prices.

He is not, though, exactly thrilled with the proposal from the European Commission. The proposed restriction, he gauged, will be difficult to target at companies generating excess revenues due to the structure of the energy market and price formation mechanisms.

“It’ll take a lot of work for it to be even somewhat just,” he remarked.

Salomaa also viewed that the proposal could have long-term ramifications as electricity producers have been able to utilise their unexpected profits to make investments in renewable assets, for example.

The European Commission on Wednesday did not provide details about the mechanism to limit profits. Salomaa, though, estimated that the mechanism is likely to function effectively as a tax.

He added that one particular challenge will be implementing the proposal across the 27-country bloc, as some member states have already introduced so-called windfall taxes to limit what they deem the excess profits of energy producers. Such member states would have to scrap the taxes if the commission’s proposal to restrict profits is implemented.

The European Commission also called for action to address the liquidity problems linked to the futures electricity market, the adoption of various energy saving measures and the introduction of a price cap on Russian gas.

“We must cut Russia’s revenues, which [President Vladimir] Putin uses to finance his atrocious war in Ukraine,” stressed von der Leyen.

“We have to save energy, but we have to save it in a smart way,” she added. “So what we have to do is to flatten the curve and avoid the peak demands. We will propose a mandatory target for reducing electricity use at peak hours.”

Salomaa welcomed the proposal to explore means to save energy: “It’s tremendously important to pay attention to energy savings and also to when energy is being used.”

The European Union’s energy ministers will mull over the proposals at their extraordinary meeting on Friday.

Aleksi Teivainen – HT