Filenews 30 November 2022 - by Chrysanthos Manolis
According to the bill finally prepared by the Ministry of Finance and put from yesterday (and until December 9) to public consultation, those producers of electricity from renewable energy sources who sold their production in 2022 more than 11 cents per kilowatt hour will be subject to taxation (called a special fee) at a rate of 90%.
It is obvious that 11 cents were chosen by the Ministry of Finance as the basis for an acceptable "reasonable profit" after CERA's decision last June to set exactly this limit on the price that EAC will be obliged to buy electricity from photovoltaics, instead of the 23-24 cents per kilowatt hour that they sold until then. After that decision of CERA, most producers (about 80%) left EAC and resorted to the transitional competition arrangement, where they can sell their electricity well over 11 cents, ensuring serious additional profits. Energy farmers, as well as the Cyprus Consumers Association, argue that even the 11 cents set by CERA ensure super profits.
From a first reading of the bill it follows that the core of the taxation proposed by the Ministry of Finance for producers is the definition of profit. Because, through the proposed methodology, 11 cents per kilowatt-hour (which is considered a reasonable profit) will be deducted from the profit per kilowatt-hour produced and the rest of the profit will be taxed at 90%.
So what is profit under the bill? It is "the accounting profit as calculated in accordance with accepted accounting principles, before deduction of taxes and without taking into account any amounts, including additional depreciation, derived from or resulting from revaluations"...
It is unknown for the time being what expenses / investments will be allowed by the Tax Commissioner to include the producers of photovoltaics in order to calculate their real production cost, their profit and their super profit, ie the money they earn because from August 2021 until today they sell at prices that are linked not to their real cost but to the cost that EAC has, which uses more expensive oil for its own production. The general impression, however, that prevails in energy factors in Cyprus is that the cost of producing kilowatt-hour from photovoltaics does not usually exceed 6 to 8 cents, although there are also parks with cheaper or more expensive production.
According to the bill, the special fee that producers from RES will be required to pay (only for the super profits of 2022) will be calculated using the following methodology: The special fee is equal to the producer's profit for 2022 divided by the kilowatt-hours he sold (to EAC or the transitional competition arrangement) minus 11 cents per kilowatt hour. The balance is multiplied by the energy sold, by 90% which will be the tax on profit over 11 cents.
For the extraordinary taxation of the excess profits of energy suppliers, the methodology chosen by the Ministry of Finance sets as a basis for calculation the sales and profits in 2021, but there is also a separate methodology for the suppliers who were active in 2022.
LABELLING
Opportunity to say a lot
It is a positive development that the Government has finally prepared a bill for the extraordinary taxation of the extraordinary profits of those who produce and supply electricity from renewable energy sources. It is also good that the draft law is being put to public consultation. However, since the debate is likely to focus on what is the cost of production and what profit from sales per kilowatt-hour, the public consultation should be extended to the state's possibilities to ensure cheaper production from photovoltaics. On the table is AKEL's proposal for tenders, which are used in many EU countries and yield very low prices, even 3-4 cents per kilowatt hour (in US suppliers sell close to 20 cents or more). So instead of getting into a process of overloading production costs by companies, why don't we throw them into a battle of real competition so that they only secure contracts if they offer really advantageous prices per kilowatt-hour? For contracts of 15 to 20 years.
