Poland, Romania do not respect EU energy prices, says EDP

EDP said on Monday that the regulatory mechanisms on energy prices adopted in Romania and Poland, where it holds investments, do not respect the European rules of taxing only market revenues.

In a statement sent to the Portuguese Securities Market Commission (CMVM), EDP Renováveis – EDP’s 74.98% owned subsidiary – said that “the new legislative framework in place in Romania and Poland does not meet the European Union Council’s principle of only taxing market revenues, as it ignores the financial hedges contracted by EDP”.

“These hedges follow the company’s low-risk strategy to ensure long-term revenues and neutralise the impact of electricity market price volatility on EDP’s revenues,” it said.

In the statement, EDP said that these new taxes “may result in nullifying the effects of existing risk management strategies legitimately implemented by renewable energy producers, resulting in the taxation of unrealised profits, clearly breaching the principles contained in the Regulation”.

EDP Renewables, which owns 521 MW and 697 MW of renewable capacity in Romania and Poland, explained that according to the European Regulation on emergency intervention to address high energy prices, price cap mechanisms should apply “only to market revenues, including hedging operations against fluctuations in the wholesale electricity market”.

“This is necessary to avoid harming producers who do not effectively benefit from the current high electricity prices because their revenues are hedged against fluctuations in the wholesale electricity market,” it stressed.

It also explained that, in this context, the governments of Romania and Poland have recently introduced emergency measures to limit the revenues obtained by renewable energy producers and other market participants.

In Romania, it adds, “a 100% tax has been introduced on revenues exceeding 450 RON/MWh, as well as a withholding on behalf of off-takers”, and, in Poland, the mechanism is applicable to energy that is not covered by Contracts for Difference1, through a 100% tax “for revenues exceeding 345 PLN/MWh in wind projects with Green Certificates, or at the contracted price in projects that have Contracts for Difference”.

The company considers that “the new legislative framework in place in Romania and Poland does not meet the principle of the Council of the European Union” and says that the measures applied “have a direct impact on EDP’s activity, which will have to pay the taxes as if it were benefiting from the current high prices in the electricity market, without considering the costs incurred with the financial hedges in the energy markets”.

“This failure to consider financial hedges may result in unjustified payments and potential costs estimated at €0.3 billion in 2023, depending on the evolution of electricity prices in wholesale markets, the interpretation and/or final implementation of recently published legislation and its compatibility with international agreements in force,” it adds.

EDP also warned that it will take “the necessary steps, using the legal means at its disposal, to contribute to the return to a fair context that can enable much-needed investments in renewable energy in these countries and in the European Union in general”.