Fortum: Power plant tax would distort competition and would conflict with emissions targets

Fortum has submitted a complaint to the European Commission regarding the proposed tax

PRESS RELEASE 5 DECEMBER 2013


 

The Finnish Parliament is currently deliberating on the Government’s proposed power plant tax. The tax would target hydro, wind and nuclear power plants built prior to 2004. Fortum has submitted a complaint to the European Commission and has requested clarification of whether the tax treats companies in a similar situation in an equal manner and whether the tax is prohibited State aid to plants excluded from the tax. 

 

The tax would target so-called windfall profits. If implemented, the power plant tax would be a selective tax because it would target only certain carbon dioxide-free electricity production forms. New power plants as well as biomass-based electricity production would be unduly excluded from the tax. Fortum would be the single biggest payer of the tax, and its share of the tax would be about half, i.e. an estimated 25 million euros a year. 

 

The proposed power plant tax would be in conflict with Finland’s energy and climate targets because it would penalise Finnish emissions-free electricity production. Since the replacement value of power plant property has been selected as the basis for the tax, the tax targets primarily hydropower and varies significantly between power plants; the difference can be more than twenty-fold per produced megawatt-hour. Thus the calculation of the tax basis would be indiscriminate because the power plants’ calculated benefit from emissions trading cannot vary. The power plant tax would reduce investments in domestic emissions-free energy production both directly and indirectly.

 

“An investment in a power plant within the sphere of the tax will lead to an increase in replacement value and, consequently, to a higher tax, even if the investment were made now. Additionally, the power plant tax is an example of a tax that is discretionary and contradictory to defined political targets, and consequently increases the uncertainty and risk for all planned investments in Finland,” notes Fortum’s Esa Hyvärinen, Vice President, Corporate Relations.

 

Fortum is one of Finland’s biggest tax payers and paid 562 million euros in taxes to Finland in 2012. “It is understandable that tax revenue is needed, particularly in economically difficult years. However, energy taxation should promote the defined energy and climate policy targets and consistently comply with existing legislation. That is why the European Commission needs to review this matter,” says Esa Hyvärinen.

 

Fortum Corporation

Corporate Communications

 

Additional information:

Esa Hyvärinen, Vice President, Corporate Relations, Fortum, tel. +358 40 82 62646

 

 

Fortum’s view on the proposed power plant tax:


Fortum considers the grounds for the power plant tax to be mostly flawed and misleading – it is not a question of an unearned benefit, but of a deliberate benefit for all emissions-free energy production. The tax treats different emissions-free production forms unequally. New emissions-free capacity and biomass-based electricity production has been completely excluded from the tax.

 

According to the Government’s proposal, the defined windfall profit is related to the amount of electricity produced by each plant, to the price of emission allowances and the price of electricity – but the proposed tax is not, which results in several problems. Electricity price is determined by the Nordic electricity market and is constantly fluctuating. Therefore also the profitability of electricity production fluctuates. The replacement value of power plant structures in no way follows the electricity markets or the price of emission allowances, nor do changes in replacement value correspond with the profitability of electricity production.

 

The power plant tax varies significantly between power plants; the differences are more than twenty-fold per produced megawatt-hour. It is inconceivable that the amounts power plants benefit from emissions trading would differ so much from each other. In many cases, the tax exceeds also the benefit generated by the emissions trading, calculated in accordance with the tax proposal, and thus the tax is an added burden, not a partial taxation of a benefit gained; this cannot be considered as reasonable.

 

Fortum has invested in plant expansions and refurbishments after 2004. These investments increase the replacement value of the plants and thus the amount of the tax. For example, tens of millions have been invested in the Loviisa nuclear power plant in recent years, and the investments will grow in the future in order to ensure safe operation of the plant until the operating licenses expire. Those investments would lead to a higher power plant tax retroactively.

Emissions trading changed at the beginning of 2013: electricity production is no longer given any free emissions allowances, unlike other industry sectors are – emission allowances have to be bought at auction or on the markets. The auction-generated revenues exceed the more than 50 million euros per year intended to be collected through the power plant tax.