RES producers under scrutiny for ‘windfall profits’

By early next year the government will determine whether RES producers generated ‘windfall profits’ and – should that be the finding – tax those earnings, an official said on Monday.

Giorgos Panteli, permanent secretary at the finance ministry, told the Cyprus News Agency (CNA) that so far authorities have looked only at the RES producers’ revenues – which apparently do show a spike in recent months.

However, in order to have an overall picture, the government must sift through the companies’ expenditures to see if these, likewise, increased.

For instance, said Panteli, they will look at whether during the period in question the companies also spent more on payroll or on interest rate payments.

“We’ll have to wait until the end of the year to have a full picture,” he noted.

A working group has been set up for this very purpose – to establish whether businesses engaging in electricity production from renewables generated windfall profits, due to the particularly high energy prices. The working group comprises technocrats from the finance and energy ministries, and the Cyprus Energy Regulatory Authority.

In a statement last week, the finance ministry said it had identified certain companies who “may have had unexpectedly high revenues due to the increased price of energy from renewables. From a further economic analysis of the data, the working group will devise a methodology for possible taxation or imposition of a levy on windfall profits…”

According to that statement, those RES producers found to have made possible windfall profits fall into the category of commercial operations – as opposed to subsidy schemes for electricity generation for own consumption, such as households.

The state power corporation pays RES producers a tariff called the ‘avoidance cost’ – the cost which the power corporation avoids by not producing that amount of electricity. Essentially the avoidance cost represents the Electricity Authority of Cyprus’ (EAC) cost of production before the electricity enters the grid.

The higher the avoidance cost, the higher the rate paid to RES producers.

According to Panteli, the period under scrutiny is the year 2022.

Also on Monday, another finance ministry official, speaking on condition of anonymity, said the probe concerns 65 RES projects and 45 producers.

“The working group will examine any unexpected profits and, depending on their extent, will determine the specific methodology [for taxing these earnings],” the source told CNA.

The same source said the avoidance cost in September 2021 came to 12.8 cents per kilowatt-hour. By April this year it jumped to 19.7 cents, and to 20.96 cents in May.

In June the avoidance cost reached 25.8 cents per kilowatt-hour. In the same month, the energy regulator intervened and re-set the cost at 11 cents.

Earlier this month, the EAC told the Cyprus Mail that in July last year they bought fuel for €520 a metric tonne on average. By comparison, their more recent purchase this July cost them €1061 per metric tonne.

Similar policies have been adopted by other countries. For instance, the Greek government will impose a 90 per cent tax on large power producers’ windfall profits generated in October 2021 to March 2022. The government will use the revenue generated by the tax to further support consumers.