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Teema: Enefit Green AS comments on emergency intervention
Kuupäev: 2022-09-30 05:04
Hello,
Please find Enefit Green AS comments on the proposal for emergency
intervention to address high energy prices.
Best Regards,
Anneli Peetrik
Document Manager
Enefit Green AS <https://www.linkedin.com/company/enefitgreen/>
+372 5865 4999
Lelle 22, 11318 Tallinn | www.enefitgreen.ee
Estonian Ministry of Economic Affairs and Communications
E-mail:
[email protected]
Latvian Ministry of Economics 29 September 2022 no TO-JUH-6/276
E-mail:
[email protected]
Ministry of Energy of the Republic of Lithuania
E-mail:
[email protected]
Enefit Green AS comments on the proposal for emergency intervention to address high energy
prices
Dear Sirs,
We are writing to you in respect of the public consultation regarding Proposal for a COUNCIL
REGULATION on an emergency intervention to address high energy prices (Brussels, 14.9.2022;
COM(2022) 473 final; 2022/0289(NLE)). EUR-Lex - 52022PC0473 - EN - EUR-Lex (europa.eu)
Our comments are limited to the Section 2 of the Proposal, that market revenues of producers obtained
from the generation of electricity from the sources referred to in Article 7(1) shall be capped to a maximum
of 180 EUR per MWh of electricity produced.
We propose to abandon the obligatory implementation of the proposed measure, because limiting
the sales revenue of producers of electricity from renewable energy sources in particular increases the
risks of investing in the production of electricity from renewable sources and prevents the rapid
implementation of the Green Deal and RENewEU plans.
If it is not possible to abandon the implementation of the proposed measure, the first alternative should
be to exclude from the proposed measure all the market revenues, which are invested in the
development of new renewable electricity generation facilities during the same period, as otherwise
the proposed measure would be detrimental to immediate and direct completion of pending investments.
As a second option, each Member State should have the right to assess the feasibility of the cap
on market revenue during the period laid down in the Regulation. In a detailed assessment, Member
States should examine whether it is technically possible and expedient to implement a limitation
of market revenues. If, according to the assessment to be carried out, it is possible and expedient to
implement the measure in a Member State, detailed rules for declaring and accounting for the sequence
of electricity transactions must be drawn up. To avoid unintended side effects, all the conditions for
calculating the market revenue should be consulted with the affected electricity producers.
In order to reduce the injustice caused by the difference in periods of transactions, the calculation
of the cap on market revenues should be made on a one-off basis, i.e., at the end of the period.
Also, the quantities of electricity produced for which the related hedging contract period is longer
than the timeframe of the measure (i.e., 1.12.2022-31.3.2023) should be excluded from the
calculation of the cap on market revenues at the end of the period. The application of the cap to excluded
quantities can take place after the end of relevant hedging contract period.
ENEFIT GREEN AS Reg.code 11184032
Lelle 22, 11318 Tallinn, ESTONIA
[email protected]
Tel +372 5865 4999 www.enefitgreen.ee
Ensure that intragroup transactions are recognised as relevant trading and hedging measures
and included in the assessment of producers' market revenues. The application of the cap should allow
sufficient flexibility to adapt to the corporate structure to correctly assess the actual revenues of the
producers and avoid that the same revenue is “taxed” twice”.
Recitals:
i. Investments in electricity generation from renewable sources are capital intensive. Selective
restrictions on market revenues will increase the risks associated with development projects for the
production of electricity from renewable energy sources and thereby hinder the rapid implementation
of the green transition.
The implementation of the proposed measure will increase the political risk associated with the
development of renewable electricity and will most likely lead to an increase in the cost of financing
new development projects and a higher price of electricity for final consumers. It's not a necessity
to create a long-term high risk in order to achieve a short-term 4-month goal during this winter.
ii. Companies currently investing extensively in the production of electricity from renewable energy
sources across Baltic region find themselves in a difficult situation as a result of the proposed
measure, as they have planned their cash flows for the near future to implement new investments.
For example, before the announcement of the proposed measure Enefit Green AS planned to invest
into the construction of 355 MW of new power plants in the fourth quarter of 2022. In the first half
of 2023, the plan was to invest into 334 MW new renewable generation capacity. Companies making
investments will now likely have to halt some of their pending or new investments. The solution is
to subtract from the market revenues all the investments into the development of new
renewable electricity production capacities during the same period.
iii. As an active developer of electricity generation from renewable sources, we would point out that
limiting the market revenues as proposed in the draft regulation will change the content of
existing long-term fixed-price electricity purchase agreements with end consumers.
For renewables projects PPA-s with the suppliers and consumers are concluded in advance to
secure visibility on cash flow. In a situation where electricity production volume is below sold
volumes (due, for instance, to lack of wind), the RES producer must buy from the market to deliver
volumes sold forward. In such a situation the calculation of the price paid by the RES producer can
exceed significantly the 180€/MWh while revenues during the same period cannot exceed
180€/MWh. This would put long term power purchase contracts at risk and the electricity producer
must terminate such electricity contracts.
A concrete example to illustrate this risk:
- As an example, assume a renewable company concludes a PPA with an industrial offtaker for
10 MWh at a fixed price of 50€/MWh for the next 10 years;
- When the renewable company produces – for example – 15 MWh (i.e. 'too much' renewable
electricity compared to the contracted amount), it sells 10 MWh for the industrial offtaker and 5
MWh on the market at wholesale price.
- Similarly, in another period, when it produces 5 MWh (i.e. 'not enough' renewable electricity
compared to the contracted amount), the renewable company must go on the market to purchase
5 MWh at market price.
- Without market caps on revenues, the sale of 5 MWh at a price and the purchase of 5 MWh at
market price cancel out on average. However, assuming the wholesale price is 450€/MWh
(above the cap), the cap would apply as follows, negatively affecting the PPA:
When selling, the renewable company would receive 5 times the cap = 5 MWh x 180 €/MWh.
When purchasing, the renewable company would pay 5 times the wholesale price (not the cap!)
= 5 MWh x 450 €/MWh
This leads to a total loss for the producer on average = 5 MWh x 270 €/MWh.
It is therefore key that a methodology is developed ideally to calculate the implicit price of
produced electricity for each contract, to compare it with the revenue cap. This is very relevant,
because if you just compare the average sales price with the revenue cap, there is a risk to
overestimate the revenues of the supplier and therefore to apply the revenue cap incorrectly.
iv. According to Article 2(5) of the draft Regulation, when calculating the maximum return on sales, the
final market revenue from the sequence of transactions related to the corresponding amount of
electricity must be established. Thus, if an electricity producer has entered into, for example, a
hedging transaction on the basis of the average electricity exchange price in a calendar year, then
its sales revenue must also be estimated on the basis of the average electricity exchange price for
the calendar year. Contracts related to the quarterly market price have also been used to hedge
risks. However, the duration of the measure currently proposed (from 1. December 2022 to 31.
March 20223) does not coincide with the periods of the calendar year or quarterly hedging
transactions that are widespread in the market. To reduce the injustice caused by the difference
in periods of transactions, the calculation of the revenue should be made as a one-off, at the
end of the period. The quantities of electricity for which the related hedging period is longer than
the measure proposed by the regulation should be excluded from the calculation of the
limitation of sales revenue.
v. Intragroup transactions and contracts/hedges entered into by other units of the group. The
regulation should take into account that sometimes hedging is not carried out by the producer itself,
but through other companies of the same group, such as trading or retail subsidiaries, for the benefit
of consumers.
For example, a possible structure could be a generation and a retail/trading arm, linked by a contract
at a given transfer price. In this case, intragroup transactions are netted out (e.g. the revenues of
the generator would be offset by the payments of the trader/retailer, and the actual hedge would be
provided by the contracts with third parties).
Therefore, compliance of market revenues of producers with the revenue cap could be
demonstrated by any contracts and hedges of the generation unit or, when appropriate, with the
contracts and hedges of other subsidiaries.
Any transaction at fixed prices, even if intragroup or with trader/retailer, should be considered as a
hedge.
Sincerely Yours,
(digitally signed)
Aavo Kärmas
CEO of Enefit Green AS
Estonian Ministry of Economic Affairs and Communications
E-mail:
[email protected]
Latvian Ministry of Economics 29 September 2022 no TO-JUH-6/276
E-mail:
[email protected]
Ministry of Energy of the Republic of Lithuania
E-mail:
[email protected]
Enefit Green AS comments on the proposal for emergency intervention to address high energy
prices
Dear Sirs,
We are writing to you in respect of the public consultation regarding Proposal for a COUNCIL
REGULATION on an emergency intervention to address high energy prices (Brussels, 14.9.2022;
COM(2022) 473 final; 2022/0289(NLE)). EUR-Lex - 52022PC0473 - EN - EUR-Lex (europa.eu)
Our comments are limited to the Section 2 of the Proposal, that market revenues of producers obtained
from the generation of electricity from the sources referred to in Article 7(1) shall be capped to a maximum
of 180 EUR per MWh of electricity produced.
We propose to abandon the obligatory implementation of the proposed measure, because limiting
the sales revenue of producers of electricity from renewable energy sources in particular increases the
risks of investing in the production of electricity from renewable sources and prevents the rapid
implementation of the Green Deal and RENewEU plans.
If it is not possible to abandon the implementation of the proposed measure, the first alternative should
be to exclude from the proposed measure all the market revenues, which are invested in the
development of new renewable electricity generation facilities during the same period, as otherwise
the proposed measure would be detrimental to immediate and direct completion of pending investments.
As a second option, each Member State should have the right to assess the feasibility of the cap
on market revenue during the period laid down in the Regulation. In a detailed assessment, Member
States should examine whether it is technically possible and expedient to implement a limitation
of market revenues. If, according to the assessment to be carried out, it is possible and expedient to
implement the measure in a Member State, detailed rules for declaring and accounting for the sequence
of electricity transactions must be drawn up. To avoid unintended side effects, all the conditions for
calculating the market revenue should be consulted with the affected electricity producers.
In order to reduce the injustice caused by the difference in periods of transactions, the calculation
of the cap on market revenues should be made on a one-off basis, i.e., at the end of the period.
Also, the quantities of electricity produced for which the related hedging contract period is longer
than the timeframe of the measure (i.e., 1.12.2022-31.3.2023) should be excluded from the
calculation of the cap on market revenues at the end of the period. The application of the cap to excluded
quantities can take place after the end of relevant hedging contract period.
ENEFIT GREEN AS Reg.code 11184032
Lelle 22, 11318 Tallinn, ESTONIA
[email protected]
Tel +372 5865 4999 www.enefitgreen.ee
Ensure that intragroup transactions are recognised as relevant trading and hedging measures
and included in the assessment of producers' market revenues. The application of the cap should allow
sufficient flexibility to adapt to the corporate structure to correctly assess the actual revenues of the
producers and avoid that the same revenue is “taxed” twice”.
Recitals:
i. Investments in electricity generation from renewable sources are capital intensive. Selective
restrictions on market revenues will increase the risks associated with development projects for the
production of electricity from renewable energy sources and thereby hinder the rapid implementation
of the green transition.
The implementation of the proposed measure will increase the political risk associated with the
development of renewable electricity and will most likely lead to an increase in the cost of financing
new development projects and a higher price of electricity for final consumers. It's not a necessity
to create a long-term high risk in order to achieve a short-term 4-month goal during this winter.
ii. Companies currently investing extensively in the production of electricity from renewable energy
sources across Baltic region find themselves in a difficult situation as a result of the proposed
measure, as they have planned their cash flows for the near future to implement new investments.
For example, before the announcement of the proposed measure Enefit Green AS planned to invest
into the construction of 355 MW of new power plants in the fourth quarter of 2022. In the first half
of 2023, the plan was to invest into 334 MW new renewable generation capacity. Companies making
investments will now likely have to halt some of their pending or new investments. The solution is
to subtract from the market revenues all the investments into the development of new
renewable electricity production capacities during the same period.
iii. As an active developer of electricity generation from renewable sources, we would point out that
limiting the market revenues as proposed in the draft regulation will change the content of
existing long-term fixed-price electricity purchase agreements with end consumers.
For renewables projects PPA-s with the suppliers and consumers are concluded in advance to
secure visibility on cash flow. In a situation where electricity production volume is below sold
volumes (due, for instance, to lack of wind), the RES producer must buy from the market to deliver
volumes sold forward. In such a situation the calculation of the price paid by the RES producer can
exceed significantly the 180€/MWh while revenues during the same period cannot exceed
180€/MWh. This would put long term power purchase contracts at risk and the electricity producer
must terminate such electricity contracts.
A concrete example to illustrate this risk:
- As an example, assume a renewable company concludes a PPA with an industrial offtaker for
10 MWh at a fixed price of 50€/MWh for the next 10 years;
- When the renewable company produces – for example – 15 MWh (i.e. 'too much' renewable
electricity compared to the contracted amount), it sells 10 MWh for the industrial offtaker and 5
MWh on the market at wholesale price.
- Similarly, in another period, when it produces 5 MWh (i.e. 'not enough' renewable electricity
compared to the contracted amount), the renewable company must go on the market to purchase
5 MWh at market price.
- Without market caps on revenues, the sale of 5 MWh at a price and the purchase of 5 MWh at
market price cancel out on average. However, assuming the wholesale price is 450€/MWh
(above the cap), the cap would apply as follows, negatively affecting the PPA:
When selling, the renewable company would receive 5 times the cap = 5 MWh x 180 €/MWh.
When purchasing, the renewable company would pay 5 times the wholesale price (not the cap!)
= 5 MWh x 450 €/MWh
This leads to a total loss for the producer on average = 5 MWh x 270 €/MWh.
It is therefore key that a methodology is developed ideally to calculate the implicit price of
produced electricity for each contract, to compare it with the revenue cap. This is very relevant,
because if you just compare the average sales price with the revenue cap, there is a risk to
overestimate the revenues of the supplier and therefore to apply the revenue cap incorrectly.
iv. According to Article 2(5) of the draft Regulation, when calculating the maximum return on sales, the
final market revenue from the sequence of transactions related to the corresponding amount of
electricity must be established. Thus, if an electricity producer has entered into, for example, a
hedging transaction on the basis of the average electricity exchange price in a calendar year, then
its sales revenue must also be estimated on the basis of the average electricity exchange price for
the calendar year. Contracts related to the quarterly market price have also been used to hedge
risks. However, the duration of the measure currently proposed (from 1. December 2022 to 31.
March 20223) does not coincide with the periods of the calendar year or quarterly hedging
transactions that are widespread in the market. To reduce the injustice caused by the difference
in periods of transactions, the calculation of the revenue should be made as a one-off, at the
end of the period. The quantities of electricity for which the related hedging period is longer than
the measure proposed by the regulation should be excluded from the calculation of the
limitation of sales revenue.
v. Intragroup transactions and contracts/hedges entered into by other units of the group. The
regulation should take into account that sometimes hedging is not carried out by the producer itself,
but through other companies of the same group, such as trading or retail subsidiaries, for the benefit
of consumers.
For example, a possible structure could be a generation and a retail/trading arm, linked by a contract
at a given transfer price. In this case, intragroup transactions are netted out (e.g. the revenues of
the generator would be offset by the payments of the trader/retailer, and the actual hedge would be
provided by the contracts with third parties).
Therefore, compliance of market revenues of producers with the revenue cap could be
demonstrated by any contracts and hedges of the generation unit or, when appropriate, with the
contracts and hedges of other subsidiaries.
Any transaction at fixed prices, even if intragroup or with trader/retailer, should be considered as a
hedge.
Sincerely Yours,
(digitally signed)
Aavo Kärmas
CEO of Enefit Green AS