Assault on ‘profiteering’ green energy firms misses the point entirely

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Ursula von der Leyen dressed in the colours of Ukraine, and the EU, making her state of the union annual address.
Ursula von der Leyen dressed in the colours of Ukraine, and the EU, making her state of the union annual address.

The European Commission’s assault on energy providers of all stripes yesterday has been coming. Thanks to the byzantine structure of the energy market, the biggest winners of gas prices going through the roof have been electricity producers who source their fuel from alternatives. The European Commission wants to stop them raking it in whilst gas prices are high – in effect, a good old fashioned ban on profiteering. 

Except they aren’t. Many of the firms provide energy on fixed price contracts, meaning they aren’t affected by the spike in the wider electricity price. And more broadly, it is hardly profiteering if the highly regulated market in which you operate is specifically designed to do exactly what it is doing.

The ideal scenario would be a widespread decoupling of the energy market, but that will take years – it is too embedded within the system and contracts to be turned off overnight. Investment would flow to those operators that could produce energy at the lowest cost or in the most reliable form – and whilst investors would no doubt make a pretty penny, those savings would be inevitably passed on to consumers within a competitive marketplace. 

In an imperfect world – the one in which we have – it surely makes more sense for the European Commission to commit to a super-sized version of Rishi Sunak’s ‘windfall tax’ loophole, which while complex, limited the downsides of that particular intervention and accentuated the (limited) upside: effectively writing off the tax raid if above-average profit margins were reinvested into new projects. Instead the EC has chosen simply to skim off the top and hand those profits to consumers through handouts or price freezes, doing little to turn this crisis into an opportunity. 

This column has long proposed that the most powerful environmental force on the planet is not politicians, Extinction Rebellion protestors or Sir David Attenborough, but the animal forces of markets. In the energy markets as well as elsewhere, they should be allowed to work their magic more freely.