Margin Cap: the new paradigm

With the recent adoption of the Regulation “concerning emergency measures to tackle high energy prices” (2022/1854 of 6 October 2022), the European Commission is putting in place a series of mechanisms to mitigate the impact of the current energy crisis. This regulation calls for coordinated measures to reduce consumption while, at the same time, allowing for exceptional revenue-raising measures to finance consumer protection policies. While acknowledging that this is a market intervention, the Commission defends its decision pragmatically: exceptional situations call for exceptional measures.

In France, the transposition of this regulation, by means of the recently approved budget law, exceeds all the spatial and temporal limits set by Brussels. The French administration’s desire to collect taxes has led it to extend the application of this regulation to all electricity producers – though only applicable to the ‘inframarginal’ ones as per the European standard – for a period of 18 months, as opposed to the 7 months proposed by the Commission. Once again, Colbert came by.

All these exceptional and transitional measures, which we shall describe further below, will undoubtedly have permanent effects on the future of the energy transition. The fundamental principles of the electricity market have been broken and this will come at a cost.

These exceptional measures respond to exceptional market circumstances. Without going too far back, at the end of 2021, electricity prices were already at record highs (€122/MWh for FR Cal23). The main cause had historically been high gas prices after the stop-and-go of the Covid crisis. The sharp reduction in worldwide demand during the shutdown followed by a rapid economic recovery led to an unprecedented natural gas supply crisis. The solution at the time was an increase in Russian natural gas production for delivery to Europe. Contrary to what was desired, Russia invaded Ukraine. The Western bloc reacted in support of the latter with, among other actions, economic blockades on Russia, which in turn responded by reducing its gas injections to Europe. At the height of the tension in the summer of 2022, gas prices reached 254 €/MWh (PEG Cal23, while electricity prices reached 1130 €/MWh (FR Cal23).

To make things even worse, the barn of price stability in Europe, which is the French nuclear industry, began its journey through the desert (see article: “Nuclear energy in France: a challenge ahead”): continued maintenance rescheduling due to the pandemic, discovery of the phenomenon of stress corrosion cracking, strikes, etc. Prices reached stratospheric levels throughout Europe, and more specifically in France, the source of the problem (while the Q1 2023 contract was priced at 1288 €/MWh in Germany on 26 August 2022, the same contract cost over 1908 €/MWh in France).

Commissions decision

Since the beginning of this unprecedented crisis, Member States have begun to react with the few weapons that the rules of the single market allow them to use: reduction of network fees, reduction of taxes and externalities on gas and electricity bills. For its part, the Commission is starting to look for ways to prevent the energy crisis from turning into a social crisis. Direct subsidies to residential and industrial consumers are allowed… (see article “Rising energy prices: national measures to protect European end-consumers”). But none of this is enough to halt the escalation of prices. The problem must be tackled at source: the wholesale market.

And then discussions of a structural nature begin. Countries are divided into those who want to maintain the marginalist energy market at all costs and those who want to do away with it. The truth is that both sides were already being shaped some years ago and the energy crisis has only reopened the controversy over the structure of the market. On the one hand, Nordic and Central European countries, led by Germany, do not want to change the marginalist system that gives consumers the best price signal. On the other hand, southern countries, with France in the lead, have never welcomed the volatility of the marginalist system for an essential commodity such as energy (France, in particular, has never accepted having its electricity price depend on the price of gas, as only 6% of its electricity production is generated with this fuel).

As a Pyrrhic victory, Spain and Portugal have managed to disconnect electricity and gas prices for a 1-year period via the ‘Iberian Singularity’ mechanism (see article “THE TIMES THEY ARE A-CHANGIN’ – Iberian Singularity”) with a first intervention of the market. Obviously, this does not solve the problem of the rest of the countries.

After multiple consultations, the Commission adopted Regulation 2022/1854 of 6 October 2022, “on emergency measures to deal with high energy prices”. Here, the European Commission justifies the adoption of a series of measures to “mitigate, on a temporary basis, the risk of electricity prices, as well as their cost to final customers, reaching even less sustainable levels”. Though in a very summarised way, such regulation determines the following:

  1. A demand reduction target: 10% reduction of the gross monthly consumption; 5% reduction of consumption at peak hours and at least 10% of winter peak hours. Member States are free to choose the measures to achieve these targets, including financial compensation.
  2. Measures for retail trade. As an exception of the EU´s rules on public intervention in price fixing, Member States may apply public intervention in price fixing for the supply of electricity to SMEs, and even allows for electricity prices to be set temporarily below cost.
  3. Exceptional levy on crude oil, natural gas, coal and refining sectors. An exceptional levy is introduced on windfall profits obtained in 2022.
  4. Cap the market revenues obtained by generators and allocate the excess revenues to final electricity customers. The Commission explains that in a situation where consumers are exposed to extremely high prices it is necessary to limit, on a temporary basis, the windfall revenues of generators with lower marginal costs by applying a market revenue cap.

The extraordinary measures to reduce demand are obviously essential. The subsidisation of energy cost overruns for SMEs is also understandable in this crisis context, despite the risk of distorting the single market. The overpricing of the fuel and refining sectors, since limited, can also be accepted. On the other hand, the fourth measure, that of limiting the income of electricity producers, clashes head-on with the founding principles of the liberalised electricity market itself. It is important to remember that those new taxpayers decided to invest in their production facilities attracted by the freedom of implementation and assuming the risks of the marginalist market. If revenues are limited in this case, will producers be compensated in the future if things go wrong for them? We understand the budgetary urgency, but for the Commission to take on the role of Robin Hood of energy does not seem risk-free to us.

Aware of its breach of the founding principles of the electricity market, the Commission limits the measure in time (1 December 2022 until 30 June 2023), proposes that the measure should apply only to certain producers with low production costs – the so-called inframarginal producers, basically renewables, nuclear and lignite – and sets a sufficiently high limit to the revenue cap (180 €/MWh) so as not to jeopardise the ability of producers to recover their investment and operating costs.

Enforcement in France (Colbert came by)

We assume that, for the sake of consensus, the rule itself discreetly opens up the possibility for Member States to introduce variants to the rule by establishing a wider scope of application and/or reducing the minimum level of revenues below €180/MWh. We understand that the Commission establishes this possibility in the hope that Member States will use this flexibility in a sensible, honest way, but did not take into account the voracity of the French Treasury.

In the recently approved budget law in France, this prerogative has been used to an extent that seems excessive to us. By way of example:

  • The perimeter of application, initially restricted to inframarginal producers, is extended to all producers.
  • The 180€/MWh cap becomes 100€/MWh for solar or wind, 90€/MWh for nuclear, 40€/MWh for thermal generation based on natural gas, etc.
  • The 7-month application period envisaged by Brussels is extended to 18 months, including a retroactive period between July and December 2022.

There is no doubt that this transposition definitely distances itself from the European Rule, seeking maximum revenue regardless of the derived implications for the actors and the market. The inclusion of marginal producers violates the principle of taxation of inframarginal producers. The cap values are arbitrarily defined per technology (why a cap of €100/MWh for a photovoltaic while a combined cycle must content itself with €40/MWh). And, finally, the periods of application of the standard exceed the European prescription in all directions. The French state will probably have to face multiple claims from the producers, but in the meantime, the money will flow into the state´s treasure chests …

Leaving aside the French excesses, all these regulatory changes suggest a change in the electricity model. After this intervention, it will be much more complicated to make an investment under market conditions. Investors will have to ask themselves what are the market conditions that make their investment profitable: Those prior to the intervention? Those after? Will there be any new interventions? Of what type?

Europe has decided to embark on the largest energy transformation in history to reach the NetZero target by 2050. This will require massive investments, which can only be undertaken by private initiatives. Europe wanted these initiatives to be framed in an energy market that ensures the most efficient exchanges. From now on, things are less clear. In addition to the market risks, we have just added regulatory uncertainty. This emergency intervention has broken the fundamental principles of the electricity market, and this will come at a cost.

Antonio Haya

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Each month, one of our experts publishes an article describing his view on a specific topic of the constant changes taking place in the energy market, with special focus on the French market.

Profesional Experience & Education

Diego graduated in Political Economy at King’s College University (London – 2021). He started his professional career in a family business in Madrid as an operations manager. Diego then studied a Master in Management and Master in Computer Science at IE University (Madrid – 2022), during which he participated as an Information Technology (IT) intern in a startup. In May 2023, Diego joined the HES team as an intern specialised in programming models. In his first project, he developed a software tool for modelling the unavailability of the French nuclear fleet. Afterwards, Diego has also participated in the development of new software tools for modelling price curves, generation asset performance and other topics related to the energy market. 

Diego Marroquin

Junior Consultant

Haya Energy-6

Profesional Experience

Céline joined Haya Energy Solutions in November 2021 as marketing and administration manager. She had a first professional experience in the tourism sector as a social media manager. At HES, her activities are focused on the development of the company’s visibility at European level through: commercial actions, content marketing and development of brand strategy. Céline is also involved in the management of the company’s communication: optimisation of the website (WordPress & Elementor), LinkedIn, publication of the monthly newsletter and the organisation of conferences. Céline participates in energy projects with the clients and acts as coordinator and project manager. Finally, she is in charge of administration (accounting, expenses management, invoicing).   


Céline graduated in Spanish and English Philology at La Sorbonne (France – 2018) and holds a Master’s degree in Project Management and Cultural Tourism (Clermont-Ferrand/ Buenos Aires – 2021). 

Céline Haya Sauvage

Marketing Responsible

Céline Sauvage

Investment Advice

“Decarbonization of the Energy and Transport sectors is arguably today’s main economic driver for the industry.”

Profesional Experience

His career started in civil engineering as a Project Manager in France, Martinique and Australia. Afterwards, he became the General Manager of a subsidiary in Venezuela. In 1992, he established Dalkia in Germany (district heating, cogeneration, and partnerships) and represented Véolia in Thailand. In 2000, he opened the commercial office of Endesa in France to take advantage of the liberalized retail market. From 2006, as a development Manager at Endesa France, he led Endesa’s plan for Combined Cycle generation in France and developed the wind and PV portfolio of Snet at the same time. Philippe Boulanger worked for 3 years at E.ON’s headquarters coordinating the company´s activities in France. He was strongly involved in the French hydro concession renewal project. As a Senior Vice President – Project Director at Solvay Energy Services from April 2012 to February 2014 he was in charge of the H2/Power to gas and European direct market access deployment projects. Philippe has been an HES expert since 2014.


Philippe Boulanger holds engineering degrees both from the Ecole Polytechnique and the Ecole Nationale des Ponts & Chaussées (France) and has a combined experience of more than 25 years in energy and infrastructure. In addition to English, Mr. Boulanger is fluent in French, German & Spanish.

Philippe Boulanger

Electricity Expert


“The world is changing. New investors pay particular attention to the energy sector while historical actors adapt their position to the market.”

Profesional Experience

Antonio started his career in the electricity sector in 1991 working as a member of the General Manager’s team at Sevillana de Electricidad (Spain). In 1997, he was appointed head of commercial regulation at Endesa Distribución. In 2000, he joined the mergers and acquisitions (M&A) department of Endesa Europe. He was appointed Managing Director of Endesa Power Trading Ltd (UK) in 2003. A year later, he became responsible for energy management at SNET (France). In 2008, he was appointed Managing Director of SNET (France). In 2009, he became Director of Corporate Development at E.ON France. In 2011, he founded Haya Energy Solutions (HES), a consulting firm focused on optimising the energy management of consumers, producers and retailers of gas and electricity. From 2015 to 2018, Antonio combined the consulting activity at HES with the general management of 2 production facilities in France (2 CCGTs x 410MW), owned by KKR. At the end of 2018, he joined Asterion Industrial Partners, an infrastructure investment fund, as an operating partner. Antonio currently devotes most of his efforts to the Asterion Portfolio, while advising through HES companies in the energy sector in France, Italy, Germany, UK and Spain. 


Antonio graduated from the Escuela Técnica Superior de Ingenieros of Seville (Spain) and holds an MBA degree from Deusto University (Spain). 

Antonio Haya