Update: Changes in taxation of electricity storage

D&I Alert

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21 Dec


Dittmar & Indrenius > Insight > Update: Changes in taxation of electricity storage

Amendments to energy taxation will enter into force on 1 January 2019. The most significant changes relate to electricity storages. Electricity is transferred to electricity storages without any excise duty on electricity. The excise duty is paid when electricity is transferred to be consumed.

The need for electricity storages has arisen since more and more electricity has been produced by using renewable energy sources such as wind and solar which are not flexible. The electricity storages can be used to even out the variation in supply and demand of electricity and prices. However, current legislation has not recognized electricity storages at all. Therefore, the excise duty on electricity has been paid twice, for example, in circumstances where the storage has been first charged from the grid and later supplied back to the grid to be consumed.

The purpose of the amendments is that transmission of electricity to the electricity storage would be duty free. The excise duty is paid when electricity is transferred to be consumed from the duty free electricity storage. The conditions are

  1. the electricity storage is deemed to be a part of the grid or a power plant; or
  2. an owner of the electricity storage has a permission from the Tax Administration to uphold the duty free energy storage.

In order to meet the purpose of the amendments the definition of the grid is broadened. The electricity storage is deemed to be a part of the grid if the electricity storage is connected to the grid and no electricity can be transferred to be consumed from the electricity storage. In addition, the definition of a power plant is changed. Power plant means a fixed functional unit which acts in a certain area and its purpose is to produce electricity (and heating) and store electricity in the electricity storage. Owners of electricity storages which are not a part of a grid or a power plant in accordance with the law should apply permission of the Tax Administration in order to be owners of a duty free electricity storage. Consequently, the amendments allow duty free electricity storage for different operators as power producers, grid companies, storage service providers and even end- users under certain circumstances.

The recast electricity market directive, the wording of which is expected to be finalised in the beginning of 2019, seeks to promote market based energy storage. It would limit the distribution and transmission systems operators (DSO and TSO) involvement with energy storage facilities. Among others, DSOs and TSOs would be prohibited from owning and operating storage facilities, except in cases where no other parties have expressed interest, or where the storage facility is necessary for fulfilling the DSO’s or TSO’s obligations. Exceptions are subject to approval of the regulator. Member States would have to re-assess whether third parties would be able to own, develop and manage or operate the storage facilities, in which case the operations of DSOs and TSOs would be phased out.

We welcome the removal of double taxation. However, according to the amendments, the electricity storage means only a unit of equipment, machines and buildings which are required in order to temporary store electricity electrochemically. Our view is that the definition of an electricity storage should not be limited only to storages based on electrochemical technology. The limitation might delay development of new technology and its adoption to use. Taxation should be neutral for all technology solutions. With the current wording, storage solutions based on for example kinetic technology would not be duty free. Further amendments to energy taxation would be required in order to create level playing field and enable the use of all storage technologies.

The purpose of other, more technical, changes to energy taxation is to promote the use of natural gas instead of coal, which is part of the Government’s plan to encourage the early phase-out of combined heat and power plants using coal by 2029.

The amendments take effect on 1 January 2019 regardless the new rules regarding electricity storages which are applicable on April 1 2019. Due to developments in technology and promotion of the transfer towards more sustainable energy system, changes in energy taxation as well as energy storages in general can be expected also on the EU level.

We are happy to discuss in more detail the amended legislation in concrete situations.

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