Dutch prime minster Mark Rutte in Brussels, after the umptienth meeting on energy prices

Dutch prime minster Mark Rutte in Brussels, after the umptienth meeting on energy prices © ANP/Jonas Roosens

Europe thinks it can get rich by skimming off electricity’s ‘dream profits’

It seemed like a good idea at the time, especially politically: we give the windfall profits of the electricity producers to the vulnerable in society. All the European energy ministers voted for it. But it turned out to be a hasty decision and nobody really knew what was going to be achieved by it. ‘It's going to be a mess.’

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  • The price of electricity fell to below 80 euros per megawatt hour at the end of October. In August, it had risen to more than 600 euros. This drop in price is due to the warm weather and the gas reserves now being full, ready for winter.
  • European countries are working together to try and curb the energy crisis. One of the first measures to be carried out was to skim off the electricity producers’ surplus profits. But at current prices, that brings in little to nothing – and certainly not the 117 billion euros promised by Brussels.
  • But even before prices dropped, things weren’t looking too good for this plan. According to the Dutch Tax Office and grid operator TenneT, the collecting of (surplus) profits is ‘unfeasible’.
  • Yet The Hague is counting on getting ‘some hundreds of millions’, Paris on several billion and Berlin on ‘many, many billions’. This is money that EU Member States desperately need after having spent hundreds of billions on relief measures for their people and businesses.
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You’ll never walk alone!’ On a Sunday morning in September, a weary Chancellor Olaf Scholz quoted from the Liverpool Football Club anthem in the press room of his official residence in Berlin.

He and his cabinet had been working all night, putting together a support package of 65 billion euros to offer relief to German people and companies against sky-high energy prices. The song title was meant to reinforce their message: Hang in there, we won't leave anyone behind.

To get the money for the emergency package, Scholz wanted to confiscate the Zufallsgewinne or ‘windfall profits’ that flowed into the coffers of the electricity producers. ‘We will use the many, many, many billions that were generated to relieve the burden on our people.’

Due to the high price of gas – and the way in which the energy market is structured – electricity prices also saw a steep increase. Low-cost electricity was used initially to meet demand, generally from wind turbines, solar farms and nuclear power plants, but more expensive electricity from coal-burning power stations also provided the so-called baseload.

The confiscation of these profits is also the main topic of discussion in Brussels these days

When these sources are unable to supply enough electricity, gas-burning power stations are switched on. But at present, gas is scarce and therefore expensive, with hardly any supplies coming into Europe from Russia, and that also determines the price of all other forms of electricity. As a result, owners of wind energy generators and nuclear power plants are reaping huge revenues without an increase in their production costs. These are the ‘windfall profits’ that Chancellor Scholz wants to skim off.

The confiscation of these profits is also the main topic of discussion in Brussels these days. Ursula von der Leyen, the German president of the European Commission, stated at the end of August that the market is no longer doing what it should and that ‘the sky-high prices are exposing the shortcomings of the electricity market’.

When a few days later the hitherto reluctant German government declared the skimming of surplus profits a top priority, it opened the door for the European Commission to come up with concrete proposals.

Beauty contest

The Commission needed just over a week. On 14th September, Von der Leyen used her annual State of the European Union address at the European Parliament in Strasbourg to launch the plans. ‘In times like these, we need to share and channel profits towards those who need them most. Our proposal will provide Member States with 140 billion euros they can use to absorb the blow.’

The largest portion of this, 117 billion euros, should come from nuclear power plants and wind and solar energy producers. In the words of Von der Leyen, they are making profits ‘they never even dreamt of’.

The European Commission has therefore proposed that their profits should not exceed 180 euros per megawatt hour. So if the market price is 380 euros per megawatt hour, the wind energy producer or nuclear power plant producer would have 200 euros skimmed off that amount. The amount skimmed would then go to the state treasury of the country where the electricity was generated – without Brussels acting as a middle man – and should be used to benefit the households and companies that are hardest hit by the high prices.

However, the Commission did not explain how it arrived at the figure of 117 billion euros. Despite repeated requests from Follow the Money, its spokesperson has not given any further information, other than to say that it is ‘an estimate’. Which, as prices fluctuate, is basically stating the obvious.

There has been a sharp fall in price in recent weeks, which means that the revenue the state can expect from skimming off surplus profits will also decrease.

Even energy specialists from Brussels think tanks, who are often well informed due to their contacts within the European Commission, were not given the calculations this time.

Christian Egenhofer of the Centre for European Policy Studies says: ‘It all seems to be based on a few phone calls with grid operators. When I ask about the figures, I get the impression that the Commission officials are a bit embarrassed about their calculation.’

Even top officials of EU Member States do not get to see the underlying figures

Egenhofer says he has no idea where the figure of 117 billion euros came from. ‘You have to see it as a political number, a political message, not the end result of carefully considered calculations.’

There also appears to have been an attempt to inflate the projected revenue. The skimming measure would generate a total of 117 billion euros if it were in effect for a whole year, but the Commission proposes to skim off surplus profits for a period of four months. That would be 39 billion euros brought in of the amount promised by Von der Leyen.

It is not only journalists and analysts who do not get to see the underlying figures. Even top officials of the EU Member States – who are supposed to approve the plans, by the way – were not able to see them.

‘I believe the Commission has deliberately not shown the calculations because they contain so many assumptions,’ said a senior diplomat who wishes to remain unnamed. ‘It’s not really productive to show the calculations, because that would create a kind of beauty contest.’

By that, the diplomat meant that the Commission is keeping the figures to itself to prevent Member States from becoming overly concerned with whether a neighbouring state might be benefiting more than them.

Despite this lack of clarity, the energy ministers agreed to a plan to skim the surplus profits of electricity producers on 30 September, less than four weeks after Chancellor Scholz embraced the idea. This is very fast-paced by Brussels standards, where policy can often take years to go from the drawing board to final approval.


‘I don't see any huge returns for the Netherlands in the short term,’ acknowledges Rob Jetten, Minister for Climate and Energy, as he was leaving the Brussels meeting. ‘Maybe only a few hundred million.’

An EU diplomat later admitted that the minister’s statement was not based on a thorough analysis, but rather ‘a calculation on the back of a beermat’.

There is even a good chance that Jetten's estimate is far too optimistic.

A few days later, it turned out that officials at the Ministry of Finance in The Hague are not expecting much either. They are looking for ways to finance lowering the price cap on energy, by which means the cabinet aims to reduce energy bills for people in the Netherlands from 2023.

An official writes: ‘At present, it is very uncertain that we can get enough money using this measure [skimming surplus profits from electricity producers, ed.] to cover the financing.’ Which is a diplomatic way of saying that the European plan will probably not result in anything for the Netherlands.

The Dutch Tax Office, the Netherlands Enterprise Agency [Rijksdienst voor Ondernemend Nederland or RVO], grid operator TenneT, and the Dutch Emissions Authority have already informed the ministry that the plan from Brussels is ‘unfeasible’. This is according to internal documents sent by officials to State Secretary Marnix van Rij (Fiscality and Dutch Tax Office).

‘I think that’s how it will go and it’s going to be a hot mess’

Several energy experts, traders and diplomats have told Follow the Money that the energy market is too complex to track and collect profits in the short term. Yet Ministry of Finance documents repeatedly mention this revenue as a possible way to cover the 23.5 billion euros needed for the Dutch initiative to offer relief to its people for the high energy bills they will experience in the new year.

The Ministry of Economic Affairs and Climate is currently working on concrete proposals based on the European agreements, but it cannot confirm when this will be completed.

The big problem with skimming off surplus profits is that it is difficult to determine exactly where the electricity comes from, according to Erik van der Hoofd, head of market design at TenneT. ‘There is no direct link between purchasing and sales. A megawatt hour is a megawatt hour. We don’t look at how the electricity was generated or what the buyer will do with it. The contracts also don’t state where it comes from, nor are they required to.’

Van der Hoofd is therefore sceptical about the feasibility of the Brussels agreements. ‘Are you going to write to thousands of energy producers and ask them what happened to the electricity they generated, at what price it was sold, and to whom? But I think that’s how it will go and it’s going to be a hot mess.’

Water power

The picture in the rest of Europe is no different. National governments do not yet have a clear idea of what the revenues will be. Follow the Money asked all 27 EU Member States for their estimates, but only two countries gave concrete amounts.

Slovakia is counting on 100 million euros, but does not want to give any further details. Belgium already has plans to skim off all revenues above 130 euros per megawatt hour. According to energy minister Tinne van der Straeten, this would bring in 3.5 billion euros. This amount is so high because Belgium wants to introduce the tax for two years and for it to come into effect retroactively from 1 January 2022. This is a much longer period than was agreed upon at the European level, but the European rules of the game allow countries to do this.

None of the other 24 countries gave a concrete answer. Sweden, among others, admitted that they hadn’t even made any calculations, even though these are easy to make based on the current price of electricity.

A megawatt hour in Sweden, where hydropower is an important source of energy, is sold for well under 180 euros. The European skimming agreement would therefore not bring in a cent to the Swedish state. That said, the energy bill of Sweden’s people and businesses is already a lot lower.

And the winner is….

In Milan, energy analyst Matteo Mazzoni wondered which European countries had electricity producers with surplus profits which could be skimmed off and which didn’t. He is the director of energy analysis at the consultancy Independent Commodity Intelligence Services (ICIS) and has access to large amounts of data from the energy market.

When it became clear that the European Commission did not want to answer the question of how much the revenues were going to be per EU country, not to mention that the countries themselves didn’t seem to know, Mazzoni and his team immediately got to work.


But there are other factors that play a major role. Energy producers – especially wind energy, which have to make large investments for turbines – use long-term contracts because they offer certainty when it comes to income. But those energy supply contracts were closed at prices much lower than the megawatt hour price of recent months in the so-called day-ahead market.

According to the European Federation of Energy Traders (EFET), 88 percent of electricity production is tied up in long-term contracts. In order to determine whether the energy producers are making large profits on this, the government must be able to look into all those contracts.

When electricity producers are confronted with a government wanting a share of their revenues, they might look for loopholes

‘Introducing a tax on electricity sold in the day-ahead market is relatively simple,’ says analyst Mazzoni. ‘But outside that market it becomes more difficult. It’s not impossible, but certainly much more complicated.’

Another complicating factor is that when electricity producers are confronted with a government wanting a share of their revenues, they might dig their heels into the sand and look for loopholes in the law (see insert). ‘It could trigger a runaway from the market. Plus, less trade can lead to greater price volatility, which is precisely what we want to avoid.’ Price volatility is associated with uncertainty, which is why it can result in higher prices.

Taxing surplus profits in Spain and Italy failed to get anticipated results

Spain and Italy had very little success when imposing taxes similar to the European measure to skim off the surplus profits of energy companies.

The Spanish government expected to collect 2.6 billion euros with a tax introduced in September 2021, but Prime Minister Pedro Sanchez backtracked after opposition from the energy companies. It transpired that energy producers were not obliged to give up their profits providing they did not charge consumers more than a ‘reasonable price’. The Spanish Ministry of Finance came to the conclusion that the final amount brought in would be zero.

In Italy, energy companies have paid 2 billion euros, which is far less than the 10 to 11 billion euros that the government was counting on. That said, analysts are expecting ENEL, Italy’s largest electricity producer, to make a substantial payment before the end of this year.

The main reason the Spanish and Italian taxes failed to bring in the expected amounts was that energy companies refused to pay, took their governments to court and managed to force an amendment of the legislation.

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It is therefore not easy to calculate which profits in the electricity sector might be skimmed. Even so, analyst Mazzoni finds it strange that EU Member States have apparently not even tried to estimate the expected revenues. ‘I’m surprised that no calculations have been made for what it might mean for each country. And that is crucial because depending on how it is implemented, there will be major differences between European countries. It raises the question of how the governments of the EU Member States have been dealing with this.’

About his own calculations, the Italian analyst says: ‘France, Eastern European countries such as Hungary, and Germany can count on a substantial income. But countries in southern Europe benefit much less and the Scandinavian countries probably get nothing at all. The prices there have already fallen to below 180 euros per megawatt hour.’

The Netherlands should also not count on getting much money. Mazzoni expects that the tax will only apply to 10 percent of electricity production. This is because the Netherlands is highly dependent on electricity from gas and coal-burning power stations, and because many wind farms have long-term contracts for less than 180 euros per megawatt hour.

Skimming off surplus profits: winners and losers

The countries which will benefit the most are those with several nuclear power stations, with France at the forefront. But it will often be a case of giving with the left hand only to take back with the right.

The owner of all 56 nuclear power plants in France, Électricité de France (EDF), will soon be 100 percent state-owned, which means that the government in Paris will be skimming the surplus profits from a company it already owns. And other countries such as Sweden, Hungary and Slovakia also have nuclear power stations which are wholly or chiefly in government hands.

Mazzoni considers Germany to be one of the winners. The country is no outlier in terms of the percentage (see graph), but because the industrial superpower consumes a lot of electricity, its yield might be substantial. German Finance Minister Christian Lindner has stated that the tax will mark the end of profits of tens of billions of euros. However, the German government has not clarified exactly how much it expects to bring in.

Every country has specific circumstances that can throw a spanner in the works. Slovakia, for example, emerges as one of the big winners in Mazzoni’s model, partly because it relies heavily on electricity from nuclear power plants.

But because the country has already sold much of its energy to traders in Germany via long-term contracts, it is forced to buy its own electricity on the daily market at high prices. The Slovakian Prime Minister Eduard Heger has warned that without the billions of support from Brussels, ‘it is close to killing the economy’.

The price has often already fallen below 180 euros, which means there are no longer surplus profits to skim off

So it remains an open question as to what the skimming of surplus profits from electricity producers can bring in per country. Firstly, it is still not clear when the measure will come into effect: member states have until 1st December to come up with a national plan.

And a crucial factor will be the price of a megawatt hour at the moment the tax actually comes into effect. The high prices seen in recent months were partly caused by the building up of gas stocks for the winter, which are now more than 90 percent full.

This puts a temporary end to the bidding war between European countries. Since then, the price has often already fallen below 180 euros, which means there are no longer surplus profits to skim off from in the first place. That is, unless more member states choose to follow the Belgian example and further lower the price cap or introduce a price cap with retroactive effect. The Austrian government is already considering this option.

Falling prices are disastrous for tax revenues, but they do solve the fundamental problem of high electricity prices – it’s a knife that cuts both ways.

German (and Dutch) egoism 

In several European capitals, governments are realising that the skimming of surplus profits is not leading to the promised mountains of gold. At the same time, there are growing concerns about the gigantic support packages which rich countries like Germany and the Netherlands are putting together to help their vulnerable people and businesses.

Less than four weeks after the German government put 65 billion euros on the table and supported the skimming of surplus profits, a new and even bigger bailout package was already underway.

‘Germany can afford to borrow 200 billion euros on the financial markets, but other countries cannot’

Berlin is prepared to spend no less than 200 billion euros over the next two years to compensate for the high energy prices. ‘The goal of Russia’s energy war is to destroy what has been built up over decades by people, corporations and industry. We cannot accept that,’ said Lindner, the German Minister of Finance. ‘We are economically strong and we will use this economic strength when necessary, like now.’

He got some irritated reactions: ‘Germany can afford to borrow 200 billion euros on the financial markets, but other countries cannot,’ tweeted French Commissioner Thierry Breton. The Polish Prime Minister speaks of ‘German egoism’.

Indeed, the size of the German and Dutch relief packages dwarfs the expenditure of other European countries.

The Brussels think tank Bruegel keeps track of how much money each country is spending on lowering taxes on energy, limiting the price of electricity or gas, making cash payments to poor families, and all other measures in its arsenal. The bill for the entire EU has now risen to more than 570 billion euros, almost half of which is German.

The Brussels think tank Bruegel keeps track of how much money each country is spending on lowering taxes on energy, limiting the price of electricity or gas, making cash payments to poor families, and all other measures in its arsenal. The bill for the entire EU has now risen to more than 570 billion euros, almost half of which is German.

Brussels had hoped to be able to give each country the means by which it could offer a helping hand to its people. But the skimming of electricity producers’ surplus profits threatens to be nothing more than a band-aid for the wound.

Even Bruno Le Maire, France’s Minister of Finance, does not expect to collect more than 5 to 7 billion euros. And France is one of the countries which, according to Mazzoni’s model, should benefit more than most from the measure. If Le Maire is right, that means that the total amount brought in throughout the entire EU would be between 11 and 20 billion euros.

In the Netherlands, Minister Jetten still hopes for several hundred million, but the organisations that have to collect the money, whether the Dutch Tax Office or the Netherlands Enterprise Agency (RVO), are already having a hard time with it.

It looks as if the promise that 117 billion euros could be raked in by surplus profit skimming does not seem worth much more than the beermat used to make the calculations.

Translation: Mike Pearse