London: Grappling with an intense power crises due to ongoing conflict between Russia and Ukraine, the European Union (EU) is seriously looking to raise $140 billion from profit-making energy companies as windfall tax to make up for the electricity consumption by households and businesses.
Media reports on Wednesday suggest that the European Commission has moved ahead with its plan to cap profits of renewable and nuclear electricity producers, and tax the windfall earnings of oil and gas companies.
EU officials claimed that profits of power companies dealing in renewable sources of energy like wind, solar and nuclear energy have soared considerably as their tariffs are linked to the wholesale price of natural gas, which smashed the record in March after Russia invaded Ukraine, and now stands about 550% up on year-ago levels.
Power supply scenario in Europe came under stress after Moscow slashed supplied of gas in retaliation to sanction on Russian oil and coal exports after the invasion. EU Commission President Ursula von der Leyen said on Wednesday that the bloc would conduct a “deep and comprehensive reform” to decouple the cost of gas from the price of electricity.
“These companies are making revenues they never accounted for, they never even dreamt of,” she told EU lawmakers in a speech in Strasbourg, France. “It is wrong to receive extraordinary record profits benefiting from war and on the back of consumers,” she added.
The Commission’s proposals still need to be debated and adopted by EU member states, said media reports.
However, it is believed that a cap of €180 ($180) per megawatt hour on the electricity produced by renewable energy firms might be introduced, the Commission said in a statement. Europe’s benchmark wholesale gas price is currently €212 ($212) per megawatt hour.
The stand off between Europe and Moscow over its the latter’s invasion on Ukraine has already complicated the demand and supply balance of energy in view of rising prices of natural gas and oil last year. The prices of natural gas and oil had begun to rise after outbreak of Covid pandemic and subsequent lockdown. Although the price of oil has come down owing to the hint of a global economic slowdown, natural gas prices remain higher than their March peak.
Media reports said that the EU proposal is part of a package of measures to help the region bear with the increase in demand in winter, when temperatures drop. The package also include contributions from oil, gas and coal producers, who made big profits.
The Commission said in its statement that EU member states should levy an extra tax on any profits that exceed the average earnings for the past three years by more than 20%. It did not specify the rate of tax. “They have to pay a fair share,” von der Leyen said.
Leyen also said that the billions national governments have already committed to support consumers would “not be enough” on their own.
Together, European countries and the United Kingdom — which are facing energy crisis— have so far promised about $500 billion in subsidy to help households and businesses cope with sky rocketing energy bills. The UK on its part has imposed 25% tax on the windfall profits of oil and gas companies.