Electricity consumption can bring profits to businesses

by Piotr Gajewski and Jakub Wajs

11 March 2021 

Energy-intensive businesses can take advantage of certain financial preferences. These are capacity fee discount and excise duty exemption. They mainly apply to mines, food production plants, metallurgical and chemical plants, cement plants, paper mills and textile plants.

Capacity fee discount

End consumers that are directly connected to the transmission grid pay a capacity fee to the operator which is calculated as the product of a specific rate (in 2021, it is 76.20 zloty/MWh) and the amount of electricity consumed from the grid at specific hours of the day.

Industrial consumers with electricity consumption intensity of at least 3 per cent may pay a lower fee (the higher the intensity, the lower the capacity fee).

Industrial consumers are end consumers that

1. pursue a specific main business activity under the Polish Classification of Activities (PKD) (out of 68 codes, primarily in the mining, manufacturing, processing industries);
2. show electricity consumption intensity of at least 3 per cent;
3. used at least 100 GWh of electricity in the calendar year preceding the year for which the capacity fee is charged.

Consumers wishing to take advantage of the capacity fee discount are required to submit to the President of the Energy Regulatory Office (ERO) statements and information specified by law and a statutory auditor's opinion confirming the correct calculation of electricity consumption intensity.

The electricity consumption intensity is calculated as the percentage ratio of the cost of electricity consumed for own needs to the gross added value of the industrial consumer in the three most recent years preceding the year for which the capacity fee will be charged. The exact formula is set out in the regulation.

As a result, enterprises incurring high costs of electricity consumed for their own needs will have a higher electricity consumption intensity which may translate into a lower basis for the final amount of electricity being the basis for calculating the capacity fee.

In the case of a company consuming 100 GWh of electricity, 50 per cent of which is consumed at times covered by the capacity fee, and having even the lowest required electricity consumption intensity of 3 per cent, we are already talking about savings of about 700-800 thousand zloty.

Excise duty exemption

Energy-intensive businesses can benefit from excise duty exemption. The lawmakers allow for partial refund of excise duty paid by energy-intensive businesses. Excise duty is refunded only at the taxpayer's request.

The definition of an energy-intensive business partly overlaps with the concept of an industrial consumer, as discussed above, since it must be an entity that carries out business activities under specific PKD codes (the codes for industrial consumers and energy-intensive businesses overlap).

In addition, an energy-intensive business should:

• keep books of account in the meaning of the accounting regulations;
• not take advantage from excise duty exemption specified in Article 30(7a) of the Excise Duty Act with respect to that electricity;
• have a 3 per cent share of the costs of electricity consumed in the value of the products sold in the tax year for which the application is filed.

The lawmakers consider an energy-intensive business to be an organised part of an enterprise understood as a collection of tangible and intangible items, including liabilities, organisationally and financially separated in the existing enterprise, designed for the fulfilment of specific economic tasks, which at the same time could form an independent enterprise fulfilling such tasks on its own. This means that if a taxpayer owns several energy-intensive businesses that are organisationally and financially separate, it may receive a partial refund of excise duty paid on each energy-intensive business separately.

The amount of the refunded excise duty depends on the share of costs in the value of the products sold, on the euro exchange rate, and on the total electricity consumption of the energy-intensive business. The partial excise duty refund granted to the taxpayer should be finally determined on the basis of:

• plant's energy-intensity ratio;
• the euro/zloty exchange rate in force on the first business day of October of the year preceding the year for which the partial excise duty refund application is filed;
• the total electricity consumption expressed in megawatt-hours (MWh) in the tax year in a given production facility. The formula for the amount of the refund is set out in the statute.

If we assume that our example plant produces goods worth 40 million zloty during the tax year and the electricity consumed costs 5 million zloty, the plant's energy intensity will be 12.5%.

After using the formula for the amount of the partial refund of the excise duty paid, such enterprise will make savings of almost 600 thousand zloty.

Each of the preferences described is attractive to energy-intensive businesses and when combined, they can bring truly significant savings to the enterprise.