In draft proposals seen by the Financial Times, the European Commission is recommending that governments impose a tax on revenue generated by non-gas electricity producers when market prices exceed €200/MWh. The current spot price for electricity in Germany, the regional benchmark, is over €450/MWh. Excess revenue will be redistributed to help companies and households. Wholesale electricity prices have skyrocketed because they are tied to the price of natural gas, regardless of whether the power is generated from natural gas or other sources. Natural gas prices are about 10 times higher than averages of the past decade as a result of Russian supply cuts in response to Western support for Ukraine. European Commission President Ursula von der Leyen said on Wednesday that producers of low-carbon energy – such as wind, solar and nuclear – are making “enormous revenues, revenues that they never calculated, revenues that they never dreamed of and revenues that they can’t invest that fast.” . These “windfalls” should be channeled to member states to support vulnerable consumers and businesses, he said. The surprise tax is part of a package of five measures imposed on member states by Brussels on Wednesday in response to the widening energy crisis. The Commission’s other proposals include mandatory reductions in peak electricity demand, a price cap on Russian natural gas, changes to collateral requirements for power companies and changes to state aid rules to allow governments to bail out companies on the brink of bankruptcy collapse. The proposed €200/MWh windfall levy cap quickly drew criticism from Spain, a major producer of wind and solar power. Teresa Ribera, Spain’s energy and environment minister, said: “It does not correspond to the real costs and does not help electrification and the development of renewable energy sources.” An official document outlining the options published on Wednesday did not give specifics on the level of the windfall limit, but a senior EU official said they would be set out after an emergency meeting of energy ministers on Friday. The draft proposed that the reduction in peak electricity use should be set at 5 percent. The Kremlin warned on Monday that supplies through the critical Nord Stream 1 pipeline will be completely halted until Western sanctions are lifted. Russia’s gas imports to the EU have fallen from about 40 percent of the bloc’s total use last year to about 9 percent. Henning Gloystein, director of energy and climate at Eurasia Group, said the €200/MWh limit on gas-free electricity generators was “high enough to achieve the intended demand reduction in Europe this winter, while providing industry and small consumers at least some assurance that costs will not rise further.” Several EU diplomats and analysts said a blanket cap for all non-gas producers did not account for coal producers who face much higher costs than wind or solar producers. Coal use in the EU has increased to compensate for natural gas cuts. Brussels has also put forward a proposal for a “solidarity contribution” from fossil fuel producers to be calculated nationally from the profits of major energy companies. The Commission seeks to avoid characterizing any of the proposed measures as taxes. Tax legislation at EU level requires unanimous agreement between member states.

Diplomats from the 27 EU member states will discuss the proposals on Wednesday before energy ministers meet on Friday. Von der Leyen said the EU faced “difficult times and they are not over soon” and that any measures taken should be implemented “as soon as possible”. EU capitals are generally in favor of plans to encourage demand reduction as the fastest way to tackle the crisis, but are divided on how to deal with rising energy prices. A senior EU diplomat said the Commission’s plan had been “well received” by member states, but there were significant differences on the details. Several, including Poland, Greece and Italy, oppose a specific price cap for Russian gas, fearing that Moscow will make further supply cuts. Other states, such as Spain and Austria, have called for the separation of gas and electricity markets — something the Commission said it was considering in the long term. EU officials said the measures proposed on Wednesday would be for a limited time and would be agreed with EU capitals.