(1)

Very high prices in electricity markets have been observed since September 2021. As set out by the EU Agency for the Cooperation of Energy Regulators (ACER) established by Regulation (EU) 2019/942 of the European Parliament and of the Council (1) in its final assessment of the Union wholesale electricity market design in April 2022, this is mainly a consequence of the high price of gas, which is used as an input to generate electricity. Natural gas-fired power plants are often needed to satisfy the demand for electricity when the demand is at its highest during the day or when the volumes of electricity generated from other technologies such as nuclear, hydro or variable renewable energy sources do not suffice to cover demand. The escalation of Russia’s war of aggression against Ukraine, a Contracting Party to the Energy Community Treaty (2), since February 2022 has led to gas supplies declining markedly. Russia’s war of aggression against Ukraine has also caused uncertainty regarding the supply of other commodities, such as hard coal and crude petroleum, used by power-generating installations. This has resulted in substantial additional increases in, and volatility of, the price of electricity.

(2)

The recent substantially lower levels of gas delivery and increased disruptions of gas supply from Russia point to a significant risk that a complete halt of Russian gas supplies may happen in the near future. To increase the Union’s security of the energy supply, the Council adopted Regulation (EU) 2022/1369 (3) that provides for a voluntary reduction of natural gas demand by at least 15 % from 1 August 2022 to 31 March 2023 and grants the Council the possibility to declare a Union alert on the security of the gas supply, triggering a mandatory Union-wide gas demand reduction.

(3)

In parallel, the exceptionally high temperatures observed during the summer of 2022 have pushed up demand for electricity for cooling, adding pressure on electricity generation while, at the same time, electricity generation from certain technologies has been significantly below historical levels due to technical and weather-dependant circumstances. This is due mainly to an exceptional drought which led to: (i) a shortfall in the production of electricity by nuclear power plants in different Member States caused by the lack of available cooling water; (ii) scarce hydropower generation; and (iii) low water levels in major rivers which have adversely affected the transport of commodities used as input fuel for the generation of electricity. This unprecedented situation means that the volumes of electricity generated from natural gas-fired power plants have stayed persistently high, contributing to exceptionally and abnormally high wholesale electricity prices. Despite the reduced availability of generation capacities in some Member States, electricity exchanges between Member States have helped to avoid security of supply incidents and contributed to mitigating price volatility on Union markets, thereby enhancing each Member State’s resilience to price shocks.

(4)

The price surge in wholesale electricity markets has led to sharp increases in electricity retail prices, which are expected to continue ahead of the next heating season gradually trickling down to most consumer contracts. The sharp increase in gas prices and the resulting demand for alternative fuels has also led to an increase of other commodity prices such as those of crude petroleum and coal.

(5)

All Member States have been negatively affected by the current energy crisis, albeit to a different extent. The stark increase of energy prices is substantially contributing to the general inflation in the euro area and slowing down economic growth in the Union.

(6)

A rapid and coordinated response is therefore needed at Union level. The establishment of an emergency intervention would allow for a temporary mitigation of the risk that electricity prices and the cost of electricity for final customers reach even less sustainable levels and that Member States adopt uncoordinated national measures, which could endanger security of supply at Union level and put an additional burden on the Union’s industry and consumers. In a spirit of solidarity between Member States, a coordinated effort by Member States during the winter season 2022-23 is required to mitigate the impact of high energy prices and ensure that the current crisis does not lead to lasting harm for consumers and the economy, while preserving the sustainability of public finances.

(7)

The current disruptions of gas supplies, reduced availability of certain power generating plants, and the resulting impacts on gas and electricity prices, constitute a severe difficulty in the supply of gas and electricity energy products within the meaning of Article 122(1) of the Treaty on the Functioning of the European Union (TFEU). There is a serious risk that the situation could deteriorate further in the winter season 2022-23 in case of further disruptions of gas supplies and a cold winter season driving up the demand for gas and electricity. Such further deterioration could lead to more upward pressure on the prices of gas and of other energy commodities with a resulting impact on electricity prices.

(8)

The disruption of the energy market, caused by one of the main market players which has artificially reduced the supply of gas in the context of Russia’s war of aggression against Ukraine, and the hybrid war which is thereby being carried out, have created a crisis situation which requires the adoption of a set of urgent, temporary and exceptional measures of an economic nature to address the unbearable effects on consumers and companies. If not addressed rapidly, the crisis situation may have severe detrimental effects on inflation, on the liquidity of market operators and on the economy as a whole.

(9)

A united and well-coordinated Union-wide response is needed to tackle the stark increase of electricity prices and their impact on households and industry. Uncoordinated national measures could affect the functioning of the internal energy market, endangering security of supply and leading to further price increases in the Member States most affected by the crisis. Safeguarding the integrity of the internal electricity market is therefore crucial to preserve and enhance the necessary solidarity between Member States.

(10)

While some Member States might be more exposed to the effects of a disruption of Russian gas supplies and the resulting price increases, all Member States can contribute to limiting the economic harm caused by such disruption by taking appropriate demand reduction measures. Reducing electricity demand at national level can have a positive, Union-wide effect on electricity prices, as electricity markets are coupled and savings in one Member State thus benefit also other Member States.

(11)

Uncoordinated caps on market revenues from electricity produced from generators with lower marginal costs such as renewables, nuclear and lignite (‘inframarginal generators’) may lead to significant distortions between generators in the Union, as generators compete Union-wide on a coupled electricity market. A commitment to a joint Union-wide cap on market revenues from inframarginal generators should enable avoidance of such distortions. Furthermore, not all Member States can support consumers to the same extent due to limited financial resources, while at the same time, some electricity generators may continue enjoying significant surplus revenues. Solidarity between Member States through the Union-wide cap on market revenues should generate revenues for Member States to finance measures in support of final electricity customers, such as households, small and medium-sized enterprises (‘SMEs’) and energy intensive industries, while at the same time preserving the price signals on the markets across the Union and preserving cross-border trade.

(12)

In view of the extreme increase of retail gas and electricity prices, State and public interventions to protect consumers are of particular importance. However, the impact of the gas supply shortages on electricity prices, as well as the possibility to finance support measures from State budget, differ between Member States. If only some Member States with sufficient resources can protect customers and suppliers, this would lead to severe distortions in the internal market. A uniform obligation to pass on the surplus revenues to consumers would allow all Member States to protect their consumers. The positive effect on energy prices would have a positive impact on the interconnected Union energy market and would also help dampening the inflation rate. Therefore, in a spirit of solidarity, measures adopted in one Member State should, in the interconnected Union market, also have a positive effect in other Member States.

(13)

It appears appropriate in the current situation to take action at Union level by introducing a solidarity contribution for Union companies and permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors in order to mitigate the direct economic effects of the soaring energy prices for public authorities’ budgets, final customers and companies across the Union. Such solidarity contribution should be exceptional and strictly temporary.

(14)

The solidarity contribution is an appropriate means to tackle surplus profits, in the event of unforeseen circumstances. Those profits do not correspond to any regular profit that Union companies or permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors would or could have expected to obtain under normal circumstances, had the unpredictable events in the energy markets not have taken place. Therefore, the introduction of a solidarity contribution constitutes a joint and coordinated measure which makes possible, in a spirit of solidarity, the generation of additional proceeds for national authorities to provide financial support to households and companies heavily affected by the soaring energy prices, while ensuring a level playing field across the Union. It should be applied in parallel to the regular corporate taxes levied by each Member State on the companies concerned.

(15)

To ensure coherence across energy policy areas, the measures provided for in this Regulation should work as an interdependent package reinforcing each other. All Member States should be able to support consumers, in a targeted manner, through surplus revenues resulting from the cap on market revenues, through the reduction of electricity demand, which contributes to lowering energy prices, and through proceeds from a solidarity contribution imposed on Union companies and permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors. At the same time, lower demand should have positive effects in terms of reducing the risks to security of supply, in line with the objectives set out in Directive (EU) 2019/944 of the European Parliament and of the Council (4).

(16)

Member States should therefore endeavour to reduce their total gross electricity consumption from all consumers, including those who are not yet equipped with smart metering systems or devices enabling them to monitor their consumption during specific hours of the day.

(17)

To preserve fuel stocks for electricity generation and to specifically target the hours with highest price or consumption of electricity, when gas-fired power generation has a particularly significant impact on the marginal price, each Member State should reduce its gross electricity consumption during identified peak hours.

(18)

Based on the typical electricity consumption profile within peak hours, a binding demand reduction target of 5 % during peak hours would ensure that Member States address more specifically consumers who can deliver flexibility through demand reduction offers on an hourly basis, including through independent aggregators. Therefore, an active electricity demand reduction of at least 5 % during selected hours should contribute to a reduced fuel consumption and to a smoother repartition of demand across hours, impacting hourly market prices.

(19)

Member States should have the discretion to choose the appropriate measures to achieve the demand reduction targets so that they can reflect national specificities. When designing electricity demand reduction measures, Member States should ensure that such measures are designed so as not to undermine the Union electrification objectives as set out in the Communication of the Commission of 8 July 2020 on Powering a climate-neutral economy: An EU Strategy for Energy System Integration. Electrification is key to reduce Union dependence on fossil fuels and ensure long-term strategic autonomy of the European Union as this leads to limiting the magnitude of this energy crisis and preventing future energy crises. Measures to reduce gross electricity consumption might include national awareness-raising campaigns, publishing targeted information on the forecasted situation in the electricity system, regulatory measures limiting non-essential energy consumption, and targeted incentives to reduce electricity consumption.

(20)

When identifying appropriate demand reduction measures during peak hours, Member States should in particular consider market-based measures such as auctions or tender schemes, by which they could incentivise a reduction of consumption in an economically efficient manner. To ensure efficiency and fast implementation, Member States could use existing initiatives and expand existing schemes to develop demand response. The measures taken at national level could also include financial incentives or compensation to market participants affected, if a tangible demand reduction is achieved in addition to expected normal consumption.

(21)

To assist and provide guidance to Member States delivering the necessary demand reductions set out in this Regulation, the Commission should facilitate the sharing of best practices between Member States.

(22)

Given the extraordinary and sudden surge in electricity prices and the imminent risk of further increases, it is necessary for Member States to immediately establish the measures needed to achieve reductions of the gross electricity consumption in order to facilitate rapid price reductions and to minimise the use of fossil fuels.

(23)

In the day-ahead wholesale market, the least expensive power plants are dispatched first but the price received by all market participants is set by the last plant needed to cover the demand, which is the plant with the highest marginal costs, when the market clears. The recent surge in the price of gas and hard coal has translated into an exceptional and lasting increase of the prices at which the gas and coal-fired power generation facilities bid in the day-ahead wholesale market. That in turn has led to exceptionally high prices in the day-ahead market across the Union, as those are often the plants with the highest marginal costs needed to meet the demand for electricity.

(24)

Given the role of the price in the day-ahead market as a reference for the price in other wholesale electricity markets, and the fact that all market participants receive the clearing price, the technologies with significantly lower marginal costs have consistently recorded high revenues since the Russian military aggression against Ukraine in February 2022, well above their expectations when deciding to invest.

(25)

In a situation where consumers are exposed to extremely high prices which also harm the Union’s economy, it is necessary to limit, on a temporary basis, the extraordinary market revenues of producers with lower marginal costs by way of application of the cap on market revenues achieved through the sale of electricity within the Union.

(26)

To avoid the circumvention of the application of the cap on market revenues, Member States should put effective measures in place to ensure that the cap on market revenues is effectively applied in situations where producers are part of a group of companies.

(27)

The level at which the cap on market revenues is set should not jeopardise the ability of the producers to which it is applied, including renewable energy producers, to recover their investment and operating costs and should preserve and incentivise future investments in the capacity needed for a decarbonised and reliable electricity system. The cap on market revenues, being a uniform cap across the Union, is best suited to preserve the functioning of the internal electricity market, as it maintains price-based competition between electricity producers based on different technologies, in particular for renewables.

(28)

While occasional and short-term peaks on prices can be considered a normal feature in an electricity market and may be useful for some investors to recover their generation investment, the extreme and lasting price increase observed since February 2022 is markedly different from a normal market situation of occasional peak prices. Therefore, the cap on market revenues should not be set below the reasonable expectations of market participants as to the average level of electricity prices in the hours during which the demand for electricity was at its highest, before Russia’s war of aggression against Ukraine. Before February 2022, the average peak prices in the electricity wholesale market were significantly and consistently expected below 180 EUR per MWh across the Union in the last decades, despite the differences in electricity prices between regions in the Union. Since the initial investment decision of market participants was taken based on an expectation that, on average, the prices would be lower than that level during peak hours, setting the cap on market revenues at a 180 EUR per MWh constitutes a level well above those initial market expectations. By leaving a margin on the price that investors could reasonably have expected, it is necessary to ensure that the cap on market revenues does not counteract the initial assessment of investment profitability.

(29)

Moreover, the cap on market revenues of 180 EUR per MWh is consistently higher, including a reasonable margin, than the current levelised cost of energy (LCOE) for the relevant generation technologies, allowing producers to which it applies to cover their investments and operating costs. Considering that the cap on market revenues leaves a considerable margin between the reasonable LCOE and the cap on market revenues, it can therefore not be expected to impair the investment in new inframarginal capacities.

(30)

The cap on market revenues should be set on market revenues rather than on total generation revenues (including other potential sources of revenues such as feed-in premium), to avoid significantly impacting the initial expected profitability of a project. Regardless of the contractual form in which the trade of electricity may take place, the cap on market revenues should apply to realised market revenues only. This is necessary to avoid harming producers who do not actually benefit from the current high electricity prices due to having hedged their revenues against fluctuations in the wholesale electricity market. Hence, to the extent that existing or future contractual obligations, such as renewable power purchase agreements and other types of power purchase agreements or forward hedges, lead to market revenues from the production of electricity up to the level of the cap on market revenues, such revenues should remain unaffected by this Regulation. The measure introducing the cap on market revenues should therefore not deter market participants from entering into such contractual obligations.

(31)

While applying the cap on market revenues at the time when transactions are settled may be more efficient, it might not always be possible, for instance due to differences in the way wholesale electricity markets are organised in the Member States and across different timeframes. To account for national specificities and to facilitate the application of the cap on market revenues at national level, Member States should have the discretion to decide whether to apply it either when the settlement of the exchange of electricity takes place or thereafter. Member States should also remain free to pre-finance support measures to final electricity customers and collect the market revenues at a later stage. The Commission should provide guidance to Member States in the implementation of that measure.

(32)

The cap on market revenues should apply to technologies with marginal costs lower than the cap on market revenues, such as for instance wind, solar, nuclear energy or lignite.

(33)

The cap on market revenues should not apply to technologies with high marginal costs relating to the price of the input fuel necessary to produce electricity, such as gas and hard coal-fired power plants, as their operating costs would be significantly above the level of the cap on market revenues and its application would jeopardise their economic viability. To maintain the incentives to an overall decrease of the consumption of gas, neither should the cap on market revenues apply to technologies which directly compete with gas-fired power plants to offer flexibility to the electricity system and bid in the electricity market based on their opportunity costs, such as demand-response and storage.

(34)

The cap on market revenues should not apply to technologies using as input fuels that are substitutes for natural gas, such as biomethane, so as not to jeopardise the conversion of existing gas-fired power plants in line with the REPowerEU objectives set in particular in the Commission Communication of 18 May 2022 on a REPowerEU Plan (‘the REPowerEU Plan’).

(35)

To preserve the incentives for the development of innovative technologies, the cap on market revenues should not apply to demonstration projects.

(36)

In some Member States, the revenues obtained from some generators are already capped by way of State and public measures such as feed-in-tariffs and two-way contracts for difference. Those generators do not benefit from increased revenues resulting from the recent spike of electricity prices. Therefore, existing producers subject to that type of State measure, which were not adopted as a response to the current energy crisis, should be excluded from the application of the cap on market revenues. In a similar manner, the cap on market revenues should not apply to producers whose market revenues are subject to other regulatory measures taken by public authorities under which revenues are transferred directly to consumers.

(37)

In order to ensure an effective enforcement of the cap on market revenues, the producers, intermediaries and relevant market participants should provide the necessary data to the competent authorities of Member States and, where appropriate, to the system operators and nominated electricity market operators. In view of the large number of individual transactions for which competent authorities of Member States have to ensure the enforcement of the cap on market revenues, those authorities should have the possibility to use reasonable estimates for the calculation of the cap on market revenues.

(38)

To address situations where the application of the cap on market revenues may affect the incentives of market participants to provide balancing energy or redispatching and countertrading, Member States should be able to decide not to apply the cap on market revenues obtained from the sale of electricity in the balancing energy market and from the financial compensation for redispatching and countertrading.

(39)

To account for security of supply concerns, Member States should have the possibility to set the cap on market revenues in a way that allows the electricity producers to retain 10 % of the surplus revenues above the cap on market revenues.

(40)

Given that the generation mix and the cost-structure of power-generating facilities differ greatly among Member States, they should be allowed to maintain or introduce national crisis measures under specific conditions.

(41)

In particular, Member States should retain the possibility to further limit the revenues of the producers to which the cap on market revenues applies and to set a specific cap on the market revenues obtained from the sale of electricity produced from hard coal, the price of which can be significantly lower than the price of marginal technologies in some Member States. In order to ensure legal certainty, Member States should also be allowed to maintain or introduce national crisis measures, which limit the market revenues of producers other than those subject to the Union-wide cap on market revenues.

(42)

To ensure the security of supply, Member States should be able to set a higher cap on market revenues for producers that would otherwise be subject to the Union-wide cap on market revenues, when their investment and operating costs are higher than the Union-wide cap on market revenues.

(43)

The increased trade flows across bidding zones due to crisis-related high price differences between such zones have led to a considerable increase of congestion rents in some Member States. Congestion income revenues should continue to be allocated to fulfil the priority objectives set out in Article 19(2) of Regulation (EU) 2019/943 of the European Parliament and of the Council (5). However, Member States should exceptionally, in duly justified cases and under the control of their regulatory authorities, be given the possibility to distribute the remaining surplus revenues directly to final electricity customers instead of using them exclusively for the purposes referred to in Article 19(3) of that Regulation.

(44)

Given that by application of the cap on market revenues, not all Member States can support their final customers to the same extent due to circumstances relating to their dependence on imports of electricity from other countries, it is necessary for Member States with net imports of electricity equal or higher than 100 % to have access to agreements to share the surplus revenues with the main exporting Member State in a spirit of solidarity. Such solidarity agreements are also encouraged, in particular, to reflect unbalanced trading relationships.

(45)

Commercial and trading practices as well as the regulatory framework in the electricity sector are markedly different from the fossil fuels sector. Given that the cap on market revenues aims to mimic the market outcome that producers could have expected if global supply chains would function normally in the absence of gas supply disruptions since February 2022, it is necessary for the measure concerning electricity producers to apply to the revenues resulting from the generation of electricity. Conversely, as the temporary solidarity contribution targets the profitability of Union companies and permanent establishments with activities in the crude petroleum, natural gas, coal and refinery sectors which has significantly increased compared to prior years, it is necessary for it to apply to their profits.

(46)

Member States should ensure that the surplus revenues resulting from the application of the cap on market revenues in the field of electricity are passed on to final electricity customers to mitigate the impact of exceptionally high electricity prices. The surplus revenues should be targeted at customers, including both households and companies, who are particularly strongly affected by high electricity prices. Without the proposed measures, there is a risk that only wealthier Member States will have the resources to protect their consumers, leading to severe distortions in the internal market.

(47)

The revenues from the cap should help Member States finance measures such as income transfers, rebates on bills, compensating suppliers for supplying below cost, as well investments that would lead to a structural reduction of consumption, in particular from electricity produced from fossil fuel sources. When support is granted to non-household customers, those should work towards undertaking investments in decarbonisation technologies, including renewable energies, for example through power purchasing agreements or direct investments in renewables generation, or towards undertaking investments in energy efficiency.

(48)

Public interventions in price setting for the supply of electricity constitute, in principle, a market-distortive measure. Such interventions may therefore only be carried out as public service obligations and should be subject to specific conditions. Currently, under Directive (EU) 2019/944, regulated prices are possible for households and micro-enterprises, and they are also possible, including below cost, for energy poor and vulnerable customers. However, in the presence of the current exceptional rise of electricity prices, the toolbox of available measures that the Member States have at their disposal to support consumers should be temporarily extended by providing the possibility to extend regulated prices to SMEs and by permitting regulated prices below cost. Such an extension could be financed by the cap on market revenues.

(49)

It is important that, where below cost, regulated retail prices do not discriminate between suppliers or impose unfair costs on them. Suppliers should therefore be fairly compensated for costs they incur supplying at regulated prices, without prejudice to the application of State aid rules. The cost of below cost regulated prices should be financed by the revenues stemming from the application of the cap on market revenues. In order to avoid that such measures increase demand for electricity, while still meeting the energy needs of consumers, below cost regulated prices should cover only a limited amount of consumption. Supplier of last resort regimes, and the choice by Member States of the supplier of last resort, should remain unaffected by this Regulation.

(50)

Without substantially changing their cost structure and increasing their investments, Union companies and permanent establishments generating at least 75 % of turnover with activities in the crude petroleum, natural gas, coal and refinery sectors, have seen their profits spike due to the sudden and unpredictable circumstances of Russia’s war of aggression against Ukraine, reduced supply of energy and increasing demand due to record high temperatures.

(51)

The temporary solidarity contribution should act as a redistributing measure to ensure that the companies concerned which have earned surplus profits as a result of the unexpected circumstances, contribute in proportion to the improvement of the energy crisis in the internal market.

(52)

The base for calculating the temporary solidarity contribution is taxable profits of the companies and permanent establishments that are tax resident in the Union in the field of crude petroleum, natural gas, coal and refinery sectors as determined in bilateral treaties or Member States national tax laws for the fiscal year starting on or after 1 January 2022 and/or 1 January 2023 and for their respective full duration. Member States which tax only distributed corporate profits should apply the temporary solidarity contribution to the calculated profits irrespective of their distribution. The fiscal year is determined by reference to the rules in place under Member States’ national law.

(53)

Only profits made in 2022 and/or 2023 above a 20 % increase of the average taxable profits generated in the four fiscal years starting on or after 1 January 2018 should be subject to the solidarity contribution.

(54)

This approach would ensure that part of the profit margin, which is not due to the unpredictable developments in the energy markets following Russia’s war of aggression against Ukraine could be used by Union companies and permanent establishments concerned for future investment or for ensuring their financial stability during the ongoing energy crisis including for the energy intense industry. This approach to determining the calculation base would ensure that the solidarity contribution in different Member States is proportionate. At the same time, the setting of a minimum rate should ensure that the solidarity contribution is both fair and proportionate. Member States should remain free to apply a rate higher than 33 % for their solidarity contribution. This should enable such Member States to set the preferred rate they deem acceptable and appropriate under their national legal systems.

(55)

Member States should take the necessary measures to ensure the full application of the solidarity contribution provided for in this Regulation and should arrange for the necessary adjustments in national law, in particular in order to ensure the timely collection of the solidarity contribution, including on the basis of net revenues against which the solidarity contribution can be offset, to cater for the deductibility or non-deductibility of the solidarity contribution, or to cater for the treatment of losses in previous fiscal years, for the consistent treatment of shortened fiscal years for companies created in 2022 and/or 2023, or for business restructuring or mergers, for the purpose of calculating the solidarity contribution.

(56)

The solidarity contribution should be used for: i) financial support measures to final energy customers, and in particular vulnerable households, to mitigate the effects of high energy prices; ii) financial support measures to help reducing the energy consumption; iii) financial support measures to support companies in energy intensive industries; and iv) financial support measures to develop the energy autonomy of the Union. Member States should also be permitted to assign a share of the proceeds of the temporary solidarity contribution to common financing. Those measures require substantial flexibility to take account of Member States’ budgetary processes.

(57)

The use of the proceeds for those purposes reflects the solidarity contribution’s exceptional and temporary nature as a measure that intends to reduce and mitigate the harmful effects of the energy crisis for households and companies across the Union with the objective of protecting the internal market and preventing the risk of further fragmentation. Soaring energy prices affect all Member States. However, because of the differences in their respective energy mixes, Member States are not all impacted in the same way and do not all have the same fiscal space to take the necessary measures to protect vulnerable households and companies. In the absence of a Union measure such as a solidarity contribution, there is a high risk of disruption and further fragmentation of the internal market, which would be detrimental to all Member States, given the integration of energy markets and of value chains. Tackling energy poverty and addressing the social consequences of the energy crisis, in particular to protect workers in exposed industries, are also a matter of solidarity between Member States. To maximise its impact, the use of the proceeds of the solidarity contribution should be done in a coordinated way and/or through Union financing instruments in a spirit of solidarity.

(58)

In particular, Member States should target financial support measures to the most vulnerable households and companies, which are most affected from the soaring energy prices. This would preserve the price incentive to reduce energy demand and save energy. In addition, targeting most vulnerable and liquidity-constrained households would have a positive effect on overall consumption by averting excessive crowding out of spending on non-energy goods, given the high-income propensity to consume for that group of households. Moreover, the proceeds of the solidarity contribution should be used for fostering the reduction of energy consumption. In this respect, such proceeds should be used, for instance, for the purpose of demand reduction auctions or tender schemes, lowering the energy purchase costs of final energy customers for certain volumes of energy consumption, or promoting investments by final energy customers, both vulnerable households and companies, into renewables, energy efficiency investments or other decarbonisation technologies. The proceeds from the solidarity contribution should also be used for financially supporting companies in energy intensive industries, and in regions relying on those industries. Costs in energy intensive industries, such as the fertiliser industry, are skyrocketing due to soaring energy prices. Financial support measures are to be made conditional upon investments into renewable energies, energy efficiency, or other decarbonisation technologies. Furthermore, measures which help making the Union more autonomous in the energy field should be supported with investments in accordance with the objectives set in the Commission Communication of 8 March 2022 on REPowerEU: Joint European Action for more affordable, secure and sustainable energy (‘the REPowerEU Joint European Action’) and in the REPowerEU Plan, in particular for projects with a cross-border dimension.

(59)

Member States could also decide to assign part of the proceeds from the solidarity contribution to the common financing of measures that are intended to reduce the harmful effects of the energy crisis, including support for protecting employment and the reskilling and upskilling of the workforce, or to promote investments in energy efficiency and renewable energy, including in cross-border projects. The common financing aspect covers both project-based cost-sharing between Member States and channelling through a Union instrument on the basis of Member States voluntarily assigning revenues to the Union budget in a spirit of solidarity.

(60)

Regular and effective monitoring and reporting to the Commission are essential for the assessment of progress made by the Member States in the achievement of the demand reduction targets, the implementation of the cap on market revenues, the use of the surplus revenues, and the application of regulated prices.

(61)

Member States should report to the Commission on the application of the solidarity contribution in their respective territories, as well as on any amendments they make to their national legal frameworks for that purpose, including additional legislation that may be needed to ensure a consistent domestic implementation of the solidarity contribution.

(62)

Member States should also report on the use of the proceeds from the solidarity contribution. In particular, this is to ensure that Member States use the proceeds in line with the usage provided for in this Regulation.

(63)

Member States should apply the solidarity contribution set by this Regulation in their respective territories unless they have enacted equivalent national measures. The objective of the national measure should be deemed similar to the overall objective of the solidarity contribution set by this Regulation when it consists of contributing to the affordability of energy. A national measure should be deemed subject to similar rules as the solidarity contribution where it covers activities in the crude petroleum, natural gas, coal and refinery sectors, determines a base, provides for a rate, and ensures that the proceeds of the national measure are used for purposes that are comparable to those of the solidarity contribution.

(64)

The solidarity contribution and the Union legal framework governing it should be of a temporary nature to address the exceptional and urgent situation that has emerged in the Union with respect to the soaring energy prices. The solidarity contribution should be applicable to cover surplus profits generated in 2022 and/or 2023 to address and mitigate the harmful effects of the current ongoing energy crisis for households and companies. The application of the solidarity contribution to the full fiscal year should allow the use of surplus profits for the relevant period, in the public interest of mitigating the consequences of the energy crisis, while leaving an appropriate measure of profits to the companies concerned.

(65)

The solidarity contribution should apply only to the fiscal year 2022 and/or 2023. By 15 October 2023 and by 15 October 2024, when national authorities have a view on the collection of the solidarity contribution, the Commission should review the situation and submit a report to the Council.

(66)

In the event that a Member State experiences difficulties in the application of this Regulation and, in particular, of the temporary solidarity contribution, it should consult, where appropriate, the European Commission in line with Article 4 of the Treaty on European Union (TEU).

(67)

Due to their structural social and economic situation as well as their physical characteristics, outermost regions within the meaning of Article 349 TFEU cannot be interconnected with the Union electricity markets. They should therefore not have to apply the provisions on the reduction of gross electricity consumption during peak hours and the cap on market revenues. Besides, Member States should have the possibility to exclude the application of those provisions to electricity generated in small isolated systems or small connected systems as defined in Directive (EU) 2019/944. Furthermore, Cyprus and Malta, due to their distinct characteristics, do not apply the Union energy market acquis in full. Cyprus is completely isolated from trans-European energy networks, while Malta has only limited interconnection with them. Since a differentiated approach for those Member States would only have a limited effect on the internal energy market, Cyprus and Malta should be able to apply on a voluntary basis the provisions related to the reduction of their gross electricity consumption during peak hours and the cap on market revenues. In addition, should Cyprus decide to apply the provisions on the cap on market revenues, and in order to ensure the stability of its electricity system, it should not have to apply the cap on market revenues to electricity produced from crude petroleum products.

(68)

The volatility in underlying gas prices is creating difficulties for energy firms active in the electricity futures markets, in particular in having access to suitable collateral. The Commission, in cooperation with the European Securities Markets Authority and the European Banking Authority, is assessing issues related to the eligibility of collateral and margins, and possible ways to limit excessive intra-day volatility.

(69)

Moreover, the measures provided for in this Regulation are consistent with the complementary and ongoing work of the Commission concerning the long-term market design as announced in its Communication of 18 May 2022 on Short-Term Energy Market Interventions and Long-Term Improvements to the Electricity Market Design that was issued alongside the REPowerEU Plan.

(70)

Considering the scale of the energy crisis, the level of its social, economic and financial impact and the need to act as soon as possible, this Regulation should enter into force as a matter of urgency on the day following that of its publication in the Official Journal of the European Union.

(71)

Given the exceptional nature of the measures set out in this Regulation, and the need to apply them in particular during the winter season 2022-23, this Regulation should apply until 31 December 2023.

(72)

Since the objective of this Regulation, namely the establishment of an emergency intervention to mitigate the effects of high energy prices, cannot be sufficiently achieved by the Member States, but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the TEU. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective,