The Legal Framework
The levy to skim off windfall profits relates to quantities of electricity produced using an electricity generation plant. The new regulation was adopted by the Bundesrat (upper house of German parliament), on 16.12.2022, as a part of the Act on the Introduction of an Electricity Price Brake (Gesetz zur Einführung einer Strompreisbremse, StromPBG). With regard to electricity from plants using renewable energy sources, the scope of application of the levy to skim off windfall profits within the meaning of the StromPBG comprises:
- the quantities of electricity that were generated in the German federal territory after 30.11. 2022 and before 1.7.2023 and
- hedging transactions that had to be entirely or partly executed in the German federal territory after 30.11.2022 and before 1.7.2023 (these will not be included in the following section for reasons of complexity).
An extension of these application periods up to 30.4.2024 is possible (see Section 13(2) sentence 1 StromPBG); however, a political decision in this respect would have to be made by 31.5.2023 at the latest.
The legislation has provided for limits to the scope of application, namely, that the power plants have to have nominal electrical power output of more than 1 MW and that the respective generated quantities have to be traded within the framework of one of the various direct marketing or market bonus schemes under the Expansion of Renewable Energy Sources Act (Gesetz für den Ausbau erneuerbarer Energien, EEG). At this juncture, the type of electricity generation (i.e. renewable energies in the form of solar or wind or as part of co-generation/a CHP unit) is not important.
Please note: The levy to skim off windfall profits does not affect generation plants funded at the respective fixed rate under the EEG as well as generation plants that produce electricity in the space of one month entirely or mostly on the basis of light heating oil, hard coal, natural gas and other gases (Section 14(3) no.1 and 2 StromPBG).
Calculation of the windfall levy
The amount of the windfall levy will be 90% of the excess income. The windfall levy will have to be paid for the first time for the taxable period 1.12.2022 – 31.3.2023 by the 15th calendar day of the fifth month that follows the respective taxable period (i.e. for the first time by 15.8.2023) to the respective grid operator. As of 1.4.2023 the respective quarter will be deemed to be the taxable period.
As the vast majority of the quantities of electricity in question will be sold via the futures market, the German government has provided for the windfall levy to be determined within the framework of a multi-stage process as follows:
(1) The so-called ‘reference income’ has to be determined on the basis of hourly electricity prices. From this you have to deduct the reference costs, adjusted by a safety margin, for the quantity of electricity that has been fed in. This will ensure that the standard profit that can be expected is taken into consideration in the calculation. The interim result will constitute the calculated windfall levy.
(2) This windfall levy amount as calculated in section (1) may be reduced by the plant operator by the results of any futures transactions or other long-term contracts (in view of the increased electricity prices, it is likely that, in practice, most operators will thus make use of this possibility). In the future, the effects of adjustments made to take into account the futures market could possibly be neutral or even result in increases.
In the case of generation plants based on wind and solar, by way of derogation, the starting point for the calculation will be the technology-specific monthly market value instead of the hourly electricity prices. The purpose of this particularity is to avoid possible wrong incentives for wind and PV plant operators and, in times of lower electricity prices, would give reason to expect that the windfall levy could be reduced to a lower amount.
Please note: At the time this newsletter went to press, in the course of specialist discussions, experts had not yet formed a conclusive opinion on how the above situations should be shown in the balance sheets and P&Ls of the operators of electricity generation plants. Likewise, there is currently still no further information available about the monetary processing of the windfall levy vis à vis the competent network operators (see Section 14(1) StromPBG).