Hundreds of Millions in Just 7 Months: The Energy Crisis Produces Huge Profits for Gas and Nuclear Power Plants

In its study of more than 100 pages, CREG examines all players in the current energy landscape. Consider the crisis actions of the government and EU member states. The possibilities of setting a price cap and eliminating super-profits are discussed.

CREG has proven that gas-fired power plants have already turned in profit in the first seven months of this year compared to the whole of 2021. It makes this profit, among other things, by responding quickly to the daily (expensive) market for electricity. This market is overheated and has high prices. Gas-fired power plants currently derive 78% of their revenue from this short-term market. Nuclear power plants derive 15% of their income from this costly daily market. The other 85% are based on long-term contracts at much lower prices.

Our gas-fired power plants are operating significantly this year, more than twice in recent months compared to last year. This is because of the problems in France. Half of the nuclear park is there because of planned maintenance and because of the erosion problem. 12 out of 56 French nuclear reactors are out of service due to a corrosion problem in one of their cooling circuits. No one knows when these power plants will be back on the grid. The French simply do not have enough alternative plants for gas or coal and are forced to import power packages to avoid power shortages. One of the rescuers are the Belgians. Belgium has quite a few gas-fired power plants that now provide additional gas to supply the French. The French buy more electricity from the expensive everyday market: out of gas-fired power plants.

Moreover, rising gas prices have created an unexpected second source of income for gas-fired power plants. Most of the gas they must burn now was purchased years ago at a very low price through long-term contracts. Prices that are ten times lower than now easily. It is profitable to sell this gas directly on the gas market again instead of using it to generate electricity.

As a result, gas-fired power plants are making a good profit: our 8 largest power plants (in terms of capacity with three large nuclear power plants) raised €294.3 million during the first seven months of this year. Roughly calculated, it will amount to a profit of 504 million euros for the whole year. On average, this is the highest number in the past fifteen years. And 2022 is not over yet. Thus, the earnings calculated by CREG relate to the first seven months of this year.

Gas power plants do not have to pay extra profit tax on attractive profit margins. The same is true of nuclear power plants. According to CREG, the four newer nuclear reactors transfer about 32% of their surplus profits to the government via a “nuclear interest” or “redistribution contribution”. At the request of Federal Minister Tinne Van der Straeten, CREG examined how gas-fired power plants could be taxed on excess profits. CREG sees opportunities to tax them in a similar way to nuclear reactors. But more data is needed for an exact explanation, according to CREG.

Although nuclear power plants are already paying nuclear interest, they are still making good profits due to the energy crisis. CREG has updated the profit margins it calculated in January. In January, CREG believed the four smallest nuclear reactors would generate a profit of 1.633 billion in this year’s best-case scenario. That estimate has now risen to 2.205 billion, which is more than an additional half a billion.

Note: According to CREG, the sharp rise in profits this year is mainly due to the phase-out of Doel 3. This nuclear reactor will be permanently closed on September 23rd. A nuclear reactor that shuts down production is no longer legally allowed to enter into long-term contracts in its final life. This means that Doel 3 can now basically sell electricity in the expensive everyday market. While other reactors are mostly tied to less interesting long-term contracts.

Anyway: sharply increased profit margins for nuclear reactors also provide the government with additional funds: corrected, according to CREG, this will be 712 million euros for this year: 185 million more than the budget in January.

According to CREG, our nuclear park will generate lower profits in 2023 and 2024. But still 1.303 billion in 2023 and 1.264 billion in 2024. The government can then expect an additional 828 million tax revenue for the two years combined. The fact that nuclear reactors will produce less is simply due to the shutdown of two large reactors: Doel 3 in a few weeks and Tihange 2 in February next year.

CREG also re-examined whether Belgium’s offshore wind farms are making excess profits. CREG had previously concluded that this was likely not the case and was sticking with it.

Belgian wind farms cannot enjoy exploding electricity prices because nearly all of them are tied to long-term contracts, with the sale price set years ago. The price was much lower than the high prices of the current market.

CREG notes that newer wind farms may need less subsidies due to higher energy prices. Subsidies vary according to the income the parks earn from the electricity sold. The higher the income, the lower the support, and vice versa. Thus, parks guarantee a safe profit margin at low prices. But the margin is also obscured upwards. However, if the new parks were to bring in more money from the electricity sold, because they could conclude more interesting contracts, then the subsidy would decrease. And then we have to pay less subsidies for offshore wind on our electricity bill.

CREG asks itself how much profit traders make in the energy markets. This could be a lot, CREG suggests. Especially if these traders are throwing gas or energy that was previously purchased via cheap long-term contracts into overheated markets. But CREG does not have a clear picture of this.

Other players who could also benefit from the exorbitant prices in the market are gas and electric carriers, in this case Fluxys and Elia. Gas Transport Fluxys is actively raising more funds through its LNG terminals in Zeebrugge and Dunkirk where the cooled LNG is offloaded and stored, but also by increasing pipeline gas transportation to our neighboring countries (mainly Germany and France). But Fluxys is a regulated company: Our government sets maximum profit margins. Anything that Fluxys includes should be used for the “common good”: reductions in transportation costs on our energy bills, for example.

The (partially privatized) high voltage network operator is also under the control of our government. However, CREG warns, Elia will have to invest a bit in its higher voltage network. As a result, electricity transmission costs will rise on our bill in the coming years. It is hoped that taxes on excess profits from nuclear and gas power plants will offset this increase. Unfortunately, the fact that our energy bills will continue to be under stress in the coming years is almost written in the stars.