Energy producers are to be hit with a "windfall tax" with the government poised to raise revenue from firms making millions in profits while households struggle with price hikes.

Senior government sources were last night adamant that the tax "will happen" but that the mechanics were still being ironed out, along with a suite of measures to tackle the cost-of-living crisis in the budget.

With households and businesses pushed to the brink, officials in the Department of Finance and the Department of Environment are examining how the windfall tax would be administered, how much it will raise, and when it could be collected.

Only domestic energy producers, such as the ESB and the Corrib gas field, will be liable for the tax. However, officials are examining whether companies that produce wind-generated energy can also be included.

Officials stressed that introducing a windfall tax was a complex process and that it had to be done in a way that would not deter investment.

In Association with

"There can't be any unintended consequences, which is why it is a complex issue and will take time to develop for our market," a source said.

The prospect of a cap on energy prices was ruled out last night, with government sources describing it as a "failure" in the United Kingdom.

Finance minister Paschal Donohoe said last week that it is "unconscionable and wrong" that some businesses are worried they will go out of business due to rising energy costs, while providers are seeing a surge in profits.

However, he has consistently maintained a cautious position on a windfall tax, outlining concerns that it could undermine investment and Ireland's bid to become energy independent.

Minister for Energy Eamon Ryan has previously stated that if introduced a windfall tax would be used to provide support for people.

Taoiseach Micheál Martin last night said that introducing a windfall tax is "complex" but was being considered.

"The Minister for Finance will be looking at a detailed design of that," he added.

The Taoiseach said yesterday that the government will be adopting a "three-pronged approach" to tackling rising energy costs, including reducing energy consumption.

The Taoiseach admitted that the current issues were "very worrying" but are "part of the war" in Ukraine.

BusinessPlus.ie understands that another universal energy credit is among a range of measures that will be included in the budget. However, whether it is a repeat of the €200 energy credit already introduced or more significant has yet to be finalised.

Other measures include a welfare and pension increase, as well as reductions in childcare. The indexation of tax bands will also lead to an increase in take-home pay, while a public sector pay deal will boost the spending power of those in the public sector.

The Economic and Social Research Institute has warned that almost half of households are facing energy poverty, with the figure rising significantly from 29% earlier this year to 43%.

At an emergency meeting of the Oireachtas environment committee last week, Eirgrid chief executive Mark Foley said that he could not give a "cast-iron guarantee" that there would be no blackouts this year.

The committee heard that the state would not be concerned about a shortfall in energy were it not for a failed 2018 deal, when a contract to an energy provider to deliver 500 megawatts of generation capacity was completed after an energy auction.

However, the successful provider did not have the capacity to deliver on this which resulted in the current shortfall because, Foley said, "we would arguably have more than adequate supply to meet demand".

The conditions surrounding the auction process is being reviewed by consultants EY.