On 27 April 2023, the Danish Parliament adopted a new Act, introducing a cap on revenues from electricity production (the "Market Revenue Cap Act" (indtægtsloven)). The Market Revenue Cap Act is to ensure the implementation in Denmark of the Council Regulation on an emergency intervention to address high energy prices.
The Council Regulation (EU) 2022/1854 of 6 October 2022 on an emergency intervention to address high energy prices (the "Emergency Intervention Regulation") provides a mandatory EUR 180/MWh cap on market revenues from electricity produced in the period from 1 December 2022 to 30 June 2023. This temporary emergency intervention has been prompted by the soaring energy prices that have challenged and adversely affected not only consumers but also the European Union's economy, thus calling for measures to restrict electricity producers' surplus revenues temporarily.
The Emergency Intervention Regulation affects EU Member States directly but widely leaves it to the individual Member States' discretion to adjust the revenue cap and to decide the opt-outs and special provisions of the Emergency Intervention Regulation to be applied in national law.
The Market Revenue Cap Act includes rules on the statutory obligation to pay excess revenues to the state, the calculation of the basis for such payments, settlement and control. The Act also defines a special baseload contract arrangement for wind and solar power. The Act comes into force on the day following its publication in the Danish Law Gazette.
Electricity producers subject to the statutory payment obligation
The Market Revenue Cap Act introduces a statutory payment obligation on electricity producers earning revenues from the sale and distribution of electricity produced at installations in Denmark (including in Denmark's exclusive economic zone) as from 1 December 2022 until 30 June 2023 by using the following energy sources:
- Wind energy
- Solar energy (solar thermal and solar photovoltaic)
- Geothermal energy
- Hydropower without reservoir
- Biomass fuel (solid or gaseous biomass fuels) without biomethane
- Nuclear Energy
- Crude petroleum products
However, income from the sale and distribution of electricity produced at certain power-generating installations is exempted from the statutory payment obligation; namely:
- Power-generating installations with an installed capacity of up to 1 MW
- CHP facilities, the electricity revenue of which contributes to a reduction in heating costs pursuant to the rules of Part 4 of the Danish Heat Supply Act (lov om varmeforsyning)
- Waste incineration plants subject to s. 75(3) of the Danish Act on Electricity Supply (lov om elforsyning)
- Power-generating installations in wastewater treatment companies subject to s. 1(4) of the Danish Act on payment terms for wastewater treatment companies, etc. (lov om betalingsregler for spildevandsforsyningsselskaber m.v.)
- Power-generating installations in public water supply systems subject to s. 52(1) of the Danish Act on Water Supply etc. (lov om vandforsyning).
- Demonstration projects
- Certain hybrid plants that use biomass fuel and which also use conventional energy sources
- Power-generating installations under specifically defined aid schemes with a fixed settlement price pursuant to the Danish Act on the Promotion of Renewable Energy (lov om fremme af vedvarende energi).
Statutory payment of market revenues exceeding the cap is subject to a 90% limit
Under the Emergency Intervention Regulation, Member States may opt to decide that the cap on revenues applies only to 90% of the market revenues exceeding the cap. Denmark uses this option.
Calculation basis and basis for the statutory payment obligation
The calculation basis for each power-generating installation is determined in each calendar month. The basis for the statutory payment obligation will be the sum total of the settlement period's positive calculation basis. The Act employs two settlement periods: 1 December 2022 - 28 February 2023 and 1 March - 30 June 2023.
The calculation basis comprises realised income earned through the sale and delivery of electricity produced at the power-generating installations in a particular calendar month less EUR 180/MWh from the electricity produced.
When calculating realised market revenues, total gross revenues, not including VAT, any other expenses and income in the form of state aid must be included.
The calculation of realised market revenues includes electricity producers' gross revenues after recognition of the profit or loss of a hedge arrangement, such as a PPA.
Any revenues earned by electricity producers from down-regulation bids or from making excess capacity available are not included in the realised market revenues.
Special provisions for group companies
In the case of electricity producers forming part of a group, the cap on market revenues includes realised market revenues from the group's consolidated sale to a third party. Such calculated realised market revenues must include gross revenues from the (first) sale of electricity made by the group of related parties to a third party.
Special provisions for baseload contracts for wind power and solar farms
Electricity producers frequently conclude baseload contracts which put the producers under an obligation to deliver a fixed volume of electricity distributed equally over a period to consumers or electricity distributors.
Electricity producers concluding annual baseload contracts for wind power and solar farms may, owing to weather conditions and substantially seasonal fluctuations in the volume of electricity produced, have to purchase electricity on the spot market to meet their contractual obligations, or they may have to cover losses suffered by the contracting party by effecting such purchase on the spot market.
Any realised net loss under a baseload contract attributable to electricity produced in a particular calendar month may be eligible for deduction in whole or in part in the calculation basis for the same installation in another calendar month within a relevant settlement period. Net losses on baseload contracts not deducted in the calculation basis in the first settlement period will be carried forward and deducted in a calendar month of the second settlement period.
Such loss carry-forward, however, is conditional on the baseload contract covering the electricity produced at the installation for the calendar month in which the net losses are deducted.
Collection of statutory payment
Electricity producers must report their data using the online form made available by the tax authorities at skat.dk. Such data include details of the power-generating installations and revenues subject to the cap on market revenues. The electricity producers must state their payment obligation for each settlement period.
Electricity producers whose production is subject to the Act but has not generated revenues exceeding the cap are also under an obligation to report data to the tax authorities.
Payments due from corporate electricity producers are collected through their tax accounts known from other types of tax payments between the tax authorities and taxpayers.
Shared administration between the Danish Energy Agency and the tax authorities
Together with the tax authorities, the Danish Energy Agency is in charge of administering and supervising the cap on market revenues.
One of the Danish Energy Agency's duties is to verify whether a power-generating installation is subject to the cap on market revenues or whether it is exempted because, for instance, it is categorised as a demonstration project or a hybrid plant.
The tax authorities are in charge of the administration of the arrangement and make sure that the electricity producers report and state the correct revenues exceeding the cap on market revenues.
The tax authorities will have the powers to fix the payments due from electricity producers whereas the Minister for Climate, Energy and Utilities will have the authority to decide whether a power-generating installation will be subject to the cap on market revenues.
Decisions made by the tax authorities as well as decisions made by the Minister for Climate, Energy and Utilities may be appealed to the National Tax Tribunal.
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