The government is determined to take advantage of the “windfall” profits due to the surge in wholesale prices and return them to society in the form of electricity subsidies. This involves extending the taxation of profits from refineries to electricity producers.

As expected, this measure has met with a wave of opposition from producers, who criticize the government’s decisions as being made in panic. They believe that the price surge is temporary and that market stabilization will be achieved in the coming days.

The extraordinary levy, which will be imposed for the months of July and August, was announced last night in a television interview on SKAI by Prime Minister Kyriakos Mitsotakis. Environment and Energy Minister Mr. Theodoros Skylakakis is expected to provide further details today, with the aim of alleviating consumer burdens.

According to information, the revenues from the windfall profits will cover the burdens on consumers of green and possibly yellow tariffs up to a certain limit, e.g., for a price above 15 cents per kilowatt-hour. This means that consumers will pay up to this price, and if the cost rises above this limit, they will be subsidized by the state from the windfall profits fund. The subsidies will not be uniform and will be provided based on specific criteria, with an emphasis on vulnerable households.

Mr. Mitsotakis mentioned yesterday the development of wholesale prices over the past 10 days not only in Greece but also across Southeast Europe and Hungary. He noted that this market distortion will “hit” the August electricity bills, resulting in windfall profits for producers. With the measures to be taken by the state, he stated, “we will see reasonable prices.”

Reactions from the Market

The new tax has caused complete surprise in the market over the past 24 hours, with relevant sources describing it as an extreme measure that will disrupt the monthly discount policies of providers and drive prices up. They emphasize that it would be preferable to impose a price cap on green tariffs for August rather than a tax. Company executives also describe unprecedented market intervention, first with the green tariffs and now with the taxation of windfall profits.

The measures were finalized yesterday morning in a meeting at Maximos Mansion between the Prime Minister and Mr. Skylakakis, where market conditions and intervention possibilities to normalize the situation were analyzed. Beyond taxing windfall profits, measures such as a 5% tax on imported natural gas and the imposition of a cap per technology were examined. It remains to be seen today which of these measures will be implemented by the responsible minister.

The government’s quick response to impose measures seems to have been prompted by the price explosion and large fluctuations. Since July 7, when the wholesale price started from a low of 64.67 euros, until today, July 17, when it stands at 218 euros, the wholesale price has increased by approximately 237%. Mr. Skylakakis has repeatedly mentioned the international situation in recent days, attributing the increases to higher prices and demand in markets like Hungary, as well as issues with transport capacity and failures in electric interconnections or reduced production due to maintenance at the Kozloduy nuclear plant in Bulgaria.

What Are Windfall Profits?

The so-called “windfall” profits, as described by the European Commission, were generated during the energy crisis and relate to the functioning of wholesale markets across Europe, where the market is cleared at the highest-priced megawatt-hour entering the system. In Greece, most hours of the day, due to the high dependence on natural gas for electricity generation, the wholesale price is set by natural gas units. However, renewable energy producers and hydroelectric plants, which have much lower operational costs, as well as lignite plants, are paid at this high price. During the energy crisis and now, the bids from electricity producers in the day-ahead market and the balancing market are being scrutinized to determine if prices are significantly higher than their operational costs.

The audit began last week by RAE (Regulatory Authority for Energy) and continues today. Yesterday, PPC and Heron appeared before RAE to provide information and clarifications on their offers, while today Metlen and Elpedison are expected. Sources indicate that no speculative practices have been identified in providers’ offers so far, but the audit continues so that RAE can compile its report and send it to the political leadership of the Ministry of Environment and Energy today.

Tax on Refineries

A similar initiative to tax windfall profits has been taken by the government for oil companies, taxing the two refineries of Helleniq Energy and Motor Oil with the aim of collecting over 300 million euros. Last night, an amendment was submitted to the Parliament for the imposition of a 33% Temporary Solidarity Contribution on the surplus profits of refining companies for 2023.

The revenues from the extraordinary contribution will be used for financial support to pensioners and to increase the Public Investment Program.

The Temporary Solidarity Contribution is calculated based on surplus profits, i.e., 33% of taxable profits for 2023 that exceed 20% of the average results for the years 2018 to 2021, analogous to the contribution imposed on the taxable profits for 2022. The refineries must electronically submit a declaration to the Independent Authority for Public Revenue (AADE) by the end of September, so the temporary contribution can be paid by February 28, 2025, to be reflected in the tax returns for the fiscal year 2024.

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