Energy prices to climb higher if windfall tax imposed, warn suppliers

A windfall tax on energy company profits will push electricity and gas prices even higher, independent power suppliers have warned.

The Government is considering introducing a windfall energy tax in the budget as soaring wholesale electricity costs drive up household prices. But the Independent Energy Suppliers of Ireland (IESI) warned at the weekend that a “catch-all” tax risked further increasing domestic bills.

A spokesman for the group argued that companies supplying electricity and gas to homes and businesses should not be included in any broad tax response to the energy crisis.

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“We have no control over the wholesale prices we face,” said the spokesman. “In fact, we are facing additional costs and risks in the new environment and any windfall tax that includes retail energy suppliers would have to be passed on to customers immediately just to rebalance the business.”

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It comes as the German government on Sunday announced plans to impose a windfall tax on electricity producers to finance a new €65 billion package of relief measures to soften the blow of soaring inflation and higher energy bills. German chancellor Olaf Scholz said the government would impose a cap on the profits of energy producers who generate electricity from wind, solar, biomass, coal and nuclear energy rather than gas.

The Irish energy suppliers companies argue that their viability would be at risk if they did not pass on any windfall tax to their customers, according to the organisation.

It says that the only ways to cut prices are to lower wholesale electricity prices or Government subsidies. Its spokesman added that the group was delighted to see the EU planning emergency intervention and wholesale market reform.

“But we believe this will not be enough to shelter customers from extremely high energy bills this winter and a repeat of Government support via energy bill credits may be needed,” he predicted.

The IESI, founded by Naturgy, and since taken over by Flogas, as well as Panda and Prepaypower, maintains that overseas oil and gas companies are earning supernormal profits, but not energy suppliers. The group argues that electricity producers using cheaper forms of generation than burning natural gas but being paid prices tied to the cost of gas are also making extra profits.

Suppliers are not benefitting as they face increased costs, tighter profit margins, greater risks and higher financing burdens. A windfall tax on these businesses would the same as punishing publicans because brewers were making extra profits.

The group is calling for Government and EU reform of the wholesale market to prevent high gas costs from setting prices.

The IESI recommends that the State take continued action to address energy security and cut costs by expanding renewables paid through permanent fixed-price contracts, expanding gas generation to deal with low-wind periods and building out the electricity grid to cut inefficiencies.