Windfall tax on electricity companies will help protect consumers, minister says

A new windfall tax aimed at reducing energy prices for has been described as “pragmatic, fair and progressive” by the Environment Minister.

Eamon Ryan said the tax on non-gas electricity generators will be collected and used to “protect” households against rising energy costs.

Cabinet ministers agreed on Tuesday to cap the revenues of electricity generating companies which do not use gas.

The tax will work by placing a revenue cap on the price of electricity per megawatt hour (MWh), with the Government collecting any amounts above that cap.

A cap of 120 euro per MWh will be set for wind and solar electricity generators, while a cap of at least 180 euro per MWh will be set for oil-fired and coal-fired generation.

They will apply from December to the end of June next year.

Ministers also agreed on a plan to get fossil fuel producing companies to pay a temporary solidarity contribution.

It is calculated based on the portion of a company’s taxable profits which are more than 20% higher than a baseline.

The baseline will be the average taxable profits for the company for the period 2018 to 2021.

Taxable profits which are more than 20% above the baseline will be subject to the temporary solidarity contribution at a rate of 75%.

The measures combined are expected to raise between 340 million euro and 1.9 billion euro for the Irish Exchequer.

Speaking at a press conference at Government Buildings in Dublin, Mr Ryan said the tax will “clawback” excess profits from energy generating companies who are not using gas.

“It’s a great progressive, further, additional piece of the jigsaw that this Government has put into place to protect our people through this extraordinary high energy price period,” he said.

Mr Ryan also said it is “very difficult” at this stage to know how much the measures will raises because gas prices are changing “by the day quite significantly”.

“This has not been done to raise revenue for the State, for the general Exchequer,” Mr Ryan said.

“It is to give us a pool of funds that will help us to take further measures when it comes to protecting people from energy costs.”

The measures came before Cabinet ministers following agreement by EU energy ministers on implementing the emergency levy in response to huge profits being made by energy companies.

The EU’s windfall tax aims to redistribute profits made in Europe’s energy sector amid a crisis fuelled by Russia’s invasion of Ukraine.

As part of EU plans, member states have also been asked to reduce energy demand during peak hours, with the aim of reducing overall electricity demand by at least 10% until March 31 next year.

Under the Irish Government’s one-off measures to help people with the rising cost of living, three 200 euro energy credits are being paid per household over the winter months.

But opposition parties have increasingly argued that this will not be enough to insulate customers from spiralling energy costs as the winter months drag on.