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cPPAs and excise duties

Characteristics of the agreements

Corporate power purchase agreements (cPPAs) are long-term contracts for the purchase of electricity concluded directly between an energy producer and an industrial enterprise which is usually a large consumer of electricity.

Due to the increase in electricity prices and, at the same time, the awareness of consumers with a large volume of energy demand, they are looking for alternative energy options. cPPAs make it possible to contribute to climate protection and thus build a positive brand image. Not every company has the opportunity to run its own photovoltaic farm project, which is when companies offering to sell such energy at source on the basis of a cPPA come to the rescue. A significant factor is the possibility to set the price of such a contract and index it to the listings on the Commodity Exchange (TGE).

One of the main advantages of concluding such contracts is independence from the offers of energy sellers and stability in the supply of energy from renewable sources. In conclusion, it can be said that cPPAs are long-term power supply agreements.

PV leasing

Before talking about cPPAs, it is worth mentioning the leasing solution, i.e. the provision for a fee of energy generation tools on which an entity generates energy for its own needs.

The owner of such tools/installations remains outside the scope of excise duty, and the lessor itself is not involved in energy production. On the other hand, the entity benefiting from the leased installation is fully responsible for the excise settlements and it is on him that this obligation rests.

In the case where the entity leasing PV panels generates electricity solely for its own needs, the activity subject to excise duty is, as a rule, the consumption of such electricity (Article 9(1)(3) and (4) of the Excise Duty Act – taxation of electricity consumption, both when the consuming entity is an entity holding any concession regarding electricity, as well as when it is an unlicensed entity which generated the electricity).

In this area, it would certainly be necessary to verify the exemption for small generators with a capacity of 1 MW resulting directly from § 5 of the Regulation of the Minister of Finance, Funds and Regional Policy of 28 June 2021 on exemptions from excise duty (Journal of Laws of 2021, item 1178)

It should be noted that this model does not take into account any sale or supply of energy between the parties to the lease agreement. Accordingly, the obligations that such an entity has when generating and consuming energy for its own purposes up to 1 MW include, from 1 July 2021, submission of quarterly declarations indicating the level of excise preference and keeping records in an electronic form. A financial burden will be involved in the case of generators with a total capacity of more than 1 MW in the form of payment of excise duty on electricity, as well as the above-mentioned obligations.

First model – physical delivery

The first solution, concluded on the basis of cPPAs, is a contract for physical delivery of electricity. It is based on the sale of electricity, and from the point of view of excise tax it is the activity (sale) that is subject to taxation, but it must be a sale to an end buyer in the territory of the country, including by an entity that does not have a concession for the production, storage, transmission, distribution or trade in electricity within the meaning of the Act of 10 April 1997. – Energy Law, which produced this energy.

  • The determination of the party obliged to pay is therefore a recognition of the status of the entity purchasing the energy. In this case, the issue under examination is the possession of a licence. If the seller and the buyer both have concessions, then there is no taxable transaction, which directly follows from the principles of excise duty:Principles of taxation of consumption, and
  • The principle of one-time taxation of excise duty.

As long as the sale of electricity takes place between entities holding concessions, such sale is not an activity subject to excise duty.

This results from the nature of the excise duty as a tax relating to its collection at the final stage of the turnover of excise goods and the transfer of the goods for their actual use/consumption (as a rule, which is not absolute for all excise goods, but in the case of electricity it is). The taxable activity will only occur at the stage of sale to the final buyer, i.e. to an entity without a licence (with certain exceptions).

In another variant, the much more frequent buyer of energy under the cPPA is an entity without a concession. According to the above, the obligation to pay excise duty will then arise for the entity selling the energy.

Subsequently, the status of entities entering into a cPPA should be established in the context of the activity, whether it is a sale or consumption, by the seller or the consuming entity, in order to determine who, if any, performs the activity that is subject to taxation or benefits from the subjective exemption. In the future, the status of the entity is to be monitored by obtaining a concession, which would lead to the transfer of excise obligations between entities.

The second cPPA model – contracts for difference

The second type of contract is financial in nature and aims to provide security regarding the level of electricity prices. This type of contract is not based on the physical delivery of energy between the contracting parties, but is based on the mechanism of a contract for difference. This means that when the market price is higher than the price agreed in the cPPA, the generator pays the difference to the consumer, and similarly when the market price is lower, the energy consumer pays the difference.

Consequently, if the energy is not sold, there are no excise duty consequences.

It should be noted that within the financial framework of the cPPAs is also a regulation of the sale of guarantees of origin of electricity.

In Art. 30(1) of the Excise Duty Act, the legislator exempts from excise duty electricity generated from renewable energy sources, provided that a document redeeming the certificate of origin (the so-called green certificate) is presented.

The exemption under Art. 30(1) of the Excise Duty Act will not, however, be applicable in the case of obtaining guarantees of origin. This is because the exemption is limited only to electricity generated from renewable energy sources on the basis of a document confirming the redemption of energy origin certificates, which have a different legal status from guarantees of origin.