Bill on revenue cap for electricity production

Purpose and expected commencement of the bill

The purpose of the revenue cap is to serve as a measure against the consequences of the current high energy prices and to avoid permanent damage to consumers, the economy and the sustainability of public finances. With the Emergency Intervention Regulation, the EU estimates that a temporary revenue cap is a necessary intervention on the electricity market due to the exceptional and continuing price increases seen since February last year.

The bill had its first reading in the Danish Parliament on 30 March 2023 and will come into force as soon as possible after its adoption.

The proposed model

According to the bill, the revenue cap will require electricity producers to pay 90 % of their revenue to the state treasury for electricity sales exceeding EUR 180 per MWh. The revenue is to be calculated for each month of the proposed period and the payment is to be settled in two periods from December 2022 to February 2023, and from March 2023 to June 2023.

Any losses on hedging contracts can be deducted in the calculation of the payment basis. The amount paid to the state treasury is to be considered operating costs for tax purposes and can be deducted from taxable income.

The Emergency Intervention Regulation assumes that the state revenue resulting from the cap will be used for reducing the impact of the high prices on electricity consumers or for investing in the green transition.

Exemptions from the revenue cap

The model includes a number of exemptions from the revenue cap, which are proposed for reasons of security of supply and governability. In particular, revenue from the sale and supply of electricity produced by the following installations are exempted:

• Small electricity production plants with an installed capacity of up to 1 MWh.
• Waste incineration plants that are self-sustaining in general.
• Combined heat/power stations which do not separately calculate heating costs on the basis of an accounting split of electricity and heat.
• Production facilities in wastewater companies

Small production facilities are exempted as the administrative burden of including them is considered to be too high compared to the expected revenue. The exemption is intended for, e.g., household wind turbines and solar cells. The 1 MWh output limit applies to each production facility, regardless of whether they are owned by the same producer.

Waste incineration plants are subject to an overall self-sustaining principle, cf. section 75(3) of the Electricity Supply Act. Their electricity revenue must therefore be shared between waste and heat consumers to the extent they exceed the costs of the installation and therefore already benefit consumers.

Combined heat/power stations are exempted because their electricity revenue is used for reducing the price of heat, whereby the revenue returns to consumers. However, this requires that the installations do not keep electricity and heat separate in their accounts. The exemption also applies to producers that do not supply directly to consumers but indirectly via supply to a self-sustaining collective heat supply system, e.g., a district heating company.

Wastewater companies can only include necessary expenses in their tariffs. Therefore, any surplus cannot be used for other purposes and must benefit consumers directly or indirectly. Wastewater companies that utilise biogas energy produced in the purification process are therefore exempted.