Ossian Smyth (Dún Laoghaire, Green Party) | Oireachtas source

I move: "That the Bill be now read a Second Time."

I am pleased to address the House on the Second Stage of the Energy (Windfall Gains in the Energy Sector) (Cap on Market Revenues) Bill 2023. As Deputies are aware, the Russian invasion of Ukraine in early 2022 led to exceptionally high energy prices. Although wholesale prices have reduced in recent months, they are still significantly above their long-term average and household gas and electricity bills are still nearly double what they were two years ago. The Government is aware of the impact these increased energy costs have had on households and businesses and has introduced numerous supports to offset their financial effect. The Government implemented a €2.4 billion package of supports during 2022 and a package of once-off measures worth €2.5 billion was included in budget 2023.

Significant action has also been taken at EU level. Council Regulation 2022/1854 on an emergency intervention to address high energy prices came into force in October 2022 and provided for a mandatory temporary solidarity contribution on fossil fuel production and refining and a cap on market revenues of certain electricity generators that earned unexpected surplus profits due to unforeseen circumstances. The first part of the regulation, which provides for the temporary solidarity contribution, has been enacted and was commenced on 2 August this year. Now we must implement the cap on market revenues which is also provided for in the regulation.

The main purpose of this Bill is to cap market revenues gained by energy companies operating within the State and provide for the redistribution of the collected funds back to consumers. It does this by implementing a cap of €120 per MWh on electricity produced from renewable sources, namely, wind, solar and hydropower. In addition, a variable cap, of at least €180, is applied to coal, oil, peat and biomass fuels. On the basis of economic appraisal conducted by my Department, I would like to note that these cap levels strike the balance of capturing excess revenue in the sector while maintaining positive investment signals. Applications of caps below these levels may risk Ireland’s success in securing the investment needed to meet our climate targets.

It is important to add that the market cap will not apply to wind, hydropower or solar energy projects which make difference payments to the public service obligation for surplus revenues above the relevant auction strike price under the renewable electricity support schemes, as these revenues are already capped.

The cap on market revenues will apply for the period from December 2022 to June 2023. The Council regulation does not provide scope to extend the cap on market revenues prior to this period. In addition, a recent review by the European Commission concluded that a prolongation of the market cap measures is neither indicated nor desirable.

The Bill and the EU regulation on which it is based are designed to provide assistance for domestic consumers who have experienced extremely high electricity prices. The proceeds raised by the cap will be used to support electricity consumers with their electricity bills. While the precise disbursement of the proceeds will be subject to a future Government decision, it will be taken in accordance with the requirements set out in Article 10 of the Council regulation.

The Commission for Regulation of Utilities, CRU, the independent energy regulator, is designated as the competent authority in the Bill. It will administer the market cap with the assistance of EirGrid, which will be the collection agent and will manage the collection of proceeds.

Before outlining the provisions of the Bill, I would like to speak on a number of key points relating to the development of the legislation which provide a context for the delay in its publication. Both this Bill and the Energy (Windfall Gains in the Energy Sector) (Temporary Solidarity Contribution) Act are complex and novel measures which required considerable engagement with a number of stakeholders such as the Commission for Regulation of Utilities, EirGrid and the Office of the Parliamentary Counsel. As a result, a Government decision was taken in June 2023 to split the Bill so as to allow time to find solutions to the complex legal issues which were present. The decision to split the Bill will not impact on the amount of proceeds ultimately collected from the cap on market revenue as the applicable timeframes for this measure will be the same as per the Council regulation.

I will provide a brief overview of the most important measures the Bill addresses before discussing them in more detail. This Bill contains four Parts and 33 sections, which I will shortly outline. Two Acts are referred to, the Companies Act 2014 and the Electricity Regulation Act 1999, with no amendment required to any existing legislation.

The main purpose of the Bill is to fulfil Ireland’s obligations under the EU Council regulation through the introduction of a cap on the revenues of specific electricity generators operating within the State and provide for the redistribution of the collected funds back to consumers. The cap on market revenues will apply to non-gas electricity generators with a capacity of 1 MW or more as follows, with three separate caps for different energy sources. A cap of €120 per MWh will apply for renewable fuel sources, which are wind, solar and hydro-powered generators, with a higher cap of €180 applied to geothermal energy and electricity generated from waste. A variable cap is provided for energy sources with variable cost structures such as biomass, coal, peat and petroleum.

In the case that electricity suppliers can demonstrate that revenues in excess of the cap are already being passed on through lower prices to final consumers, those revenues will not be subject to the cap. The cap on market revenue will apply to revenue generated from December 2022 until June 2023, inclusive, as set out in the Council regulation.

The Bill also provides for the methodology for calculating the revenues to which the various caps apply and takes account of hedging arrangements, different charging systems, power purchase agreements and the various contractual obligations, all of which form an important part of the trade of electricity within the market.

The Bill goes on to outline the procedures which participants in the energy market must follow in making their returns to the Commission for Regulation of Utilities, the process for the collection of funds and the use of these funds. It concludes with standard provisions relating to offences, penalties and data security with regard to information sharing. The Bill provides powers to the Commission for Regulation of Utilities to carry out all of these functions in an efficient manner, in accordance with the Council regulation.

I will now give a more detailed overview of the Bill and each of its four Parts. Part 1 contains standard legislative provisions that cover the Short Title of the Bill, its commencement, definitions of terms used in the Bill and a standard provision enabling the expenses of the Minister to be paid out of moneys provided by the Oireachtas.

The interpretation section, section 2, outlines 48 different terms, including definitions for the different markets in which electricity is traded, technical terms such as "generating unit", "installed capacity", "metered quantity" and "power purchase agreement" and reference to the terms "producer", "intermediary" and "trader", as well as terms relating to both the distribution system and transmission system. This first Part also provides for the power of the Minister for the Environment, Climate and Communications to prescribe regulations and schemes and concludes with a provision outlining the administrative aspects of the Bill concerning notices.

Part 2 provides for the calculation of the market cap, the return of information to the competent authority and the payment of money which is due. I will describe each chapter of this Part in detail as this is the most complex Part of the legislation. This Part is divided into 19 sections which are divided into three chapters. I will now outline these.

Chapter 1 begins by describing the relevant parties who will be liable to make a payment under the Act, as well as the specific fuel sources to which the Act applies. These sections are followed by sections 8, 9 and 10 which provide detailed and technical information concerning the calculations required to determine the level of revenue due under the cap.

Sections 11 and 12 differentiate between the preliminary surplus revenue and adjusted surplus revenue. The first is calculated as the monthly revenue minus the capped revenue. However, the second, the adjusted surplus revenue, takes account of various gains or losses from hedges, power purchase agreements, contracts for difference payments and monies paid to or received from traders’ hedging arrangements. This adjusted surplus revenue represents the amount for which an entity is liable to pay in respect of the market cap. Section 13(4) allows for some parties to include adjustments to the preliminary surplus if they can show benefits have been transferred to end consumers.

Chapter 2 of Part 2 details the returns which are required to be provided as well as giving the competent authority the power to request such information if it is not forthcoming. The returns must contain all relevant information, such as the type and number of fuel sources used, allowable costs of production, market revenue and the level of market cap, as well as the relevant person’s assessment of both preliminary surplus revenue and adjusted surplus revenue and any other relevant information regarding hedging arrangements or other documents that may be prescribed. This chapter concludes with section 19, which describes the appeals process and provides for the making of an appeal against a determination of the competent authority in the High Court.

Chapter 3, the final chapter of Part 2, details the payment of due funds, additional charges for late payments and the fact that interest will apply to these outstanding funds, which is provided for in sections 20, 21 and 22, respectively. The final two sections of Part 2 outline the requirement to maintain adequate records relating to the making of a return and states that failure to do this is an offence.

Finally, section 24 provides that the competent authority may enter and inspect premises as required to confirm that returns provided are accurate, a task in which the Garda can provide assistance, if required.

Part 3 outlines the market cap fund which will be where all amounts paid under chapter 3 are deposited. The first section describes the establishment of the fund and the second, section 26, details the accounting obligations, provides that the National Treasury Management Agency may perform this function and concludes, in section 26(6), with a provision that the Minister is required to provide copies of the accounts to the Houses of the Oireachtas.

The final two sections of this Part, sections 27 and 28, detail the use of funds raised. These can be used to set up schemes which fulfil the criteria set out in Article 10 of the Council regulation which requires that they benefit final electricity consumers. The fund may also be used for refunding overpayments to energy producers, intermediaries and traders, if required.

The final Part, Part 4, distinguishes the offences and penalties which apply for providing false or misleading information to the collection agent or the competent authority, as well as offences, outlined in section 30, relating to failure to make a return within the specified period, failure to maintain correct records, obstruction of an inspection and breaching a provision of a scheme outlined in section 28. The penalties for such offences include a fine or imprisonment for six months or, if convicted on indictment, the person in question could face a prison term of five years or a fine of almost €127,000, which is covered in section 30.

The subsequent section, section 31, outlines how the competent authority can carry out prosecutions in this regard and section 32 states that an organisation can be held liable for an offence committed by a member of that organisation.

The final section of Part 4, which concerns information sharing, outlines that both the competent authority and the collection agent can share information, including, names, data on market participation, commercial information and technical information concerning system connectivity. All information sharing will be subject to GDPR. I commend the Bill to the House and I look forward to the debate.

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