Portuguese court says extraordinary levy on renewable utilities unlawful

Portugal's constitutional court has declared the extension of an extraordinary energy levy to renewables as unlawful in response to a long-running legal challenge by utilities.

The levy, known by its Portuguese acronym of (CESE), did not include renewables when it was introduced in 2014 as part of Portugal's efforts to reduce its budget deficit at the time.

While the CESE levy was described initially as a temporary mechanism it has remained in force under successive governments.

In 2019 the levy was extended to include utilities' renewable feed-in tariffs, with a stated objective of tackling debts that had accumulated in the wider electricity sector due to the effect of regulated electricity prices.

In a ruling published on its website this week, the court ruled that the extension of the CESE levy to renewable utilities "violates the principle of equality" because the tariff debt was neither caused by renewable utilities, nor did they benefit "directly or effectively" from its reduction.

More than 60% of Portugal's electricity was generated by renewable sources in 2023, and the amount of tax levied on renewables since 2019 is likely to run to millions of euros.

Portugal's 2024 budget predicted the government would collect €125m ($134m) from the CESE across the energy sector, roughly the same as last year.

The CESE is equivalent to 0.85% of the value of taxable assets, and the court also ruled against the constitutionality of applying what is in essence a windfall tax on assets rather than income.

Portugal's biggest utility EDP has challenged the levy since its introduction and, in a new step, chose to withhold nearly €50m of CESE tax for 2023, pending the constitutional court ruling.

EDP said in its last annual report that the group, which owns 70% of EDP Renewables, has paid a total of €554m of CESE levies so far.

Its CEO Miguel Stilwell de Andrade has criticised the tax for discouraging investment and, in one interview, described it as "stupid".

Head of the Portuguese renewable energy association (APREN) Pedro Amaral Jorge welcomed the new ruling as "absolutely fair" because, he said, "it makes no sense to penalise renewables with the CESE."