July 12, 2022
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Against the backdrop of drastically increased gas purchase prices and their impact on large German gas importers, and in anticipation of an even further escalation by Russia of the gas supply disruption linked to the war in Ukraine, the German government has rushed to extend the toolbox available to shield German gas importers and others downstream along the gas supply chain from insolvency.
Insolvencies of large gas importers and local municipal utility companies would endanger the security of gas supply of German industry and German households. The toolbox adopted last week by parliament just before the parliamentary summer break includes the option for the government to introduce a gas price surcharge ultimately borne by end consumers, similar to the former German Renewable Energies Act surcharge (EEG surcharge) which had been levied to subsidize the construction and operation of renewable energy facilities in Germany.
Under the amended Energy Security Act, requirements under German corporate law for implementation of stabilization measures for operators of critical infrastructure in the German energy sector have been eased. Uniper, one of the large gas importers in Germany and the largest German importer of Russian gas, announced on Friday that it submitted an application to the German government for stabilization measures, including “a relevant participation” of the government in the company. Uniper has recently come under severe pressure due to the need to compensate massively reduced gas supplies from Russia through purchases on the spot market at significantly higher prices which it is unable to pass on to its customers in the short term under its existing gas supply contracts.
Earlier this year, amendments to the Energy Security Act had already introduced a statutory price adjustment right. This price adjustment right entitles German gas importers and downstream participants in the gas supply chain to pass on—under certain conditions—increased gas purchase prices to the next market level, down to the level of end consumers, i.e., industrial customers and private households. While the conditions for this statutory price adjustment right are currently not (yet) met, these may well be met in the short to medium term in case of a further deterioration of gas supplies from Russia.
Against this background, the amendments to the Energy Security Act adopted this week stipulate certain clarifications regarding the conditions for and the scope of the statutory price adjustment right. The amendments confirm that the statutory price adjustment right is conditional on the prior declaration by the German Bundesnetzagentur of a significant decrease of the total amounts of gas imports to Germany. Such declaration requires that stabilization measures (see above) and the introduction of a gas price surcharge (see below) were previously assessed. Further, the amendments expressly stipulate that the statutory price adjustment right only applies to contracts which concern the physical supply of natural gas within the German market area.
If the conditions for the statutory price adjustment mechanism were to be met in the future and if participants along the gas supply chain in Germany were to make use of the statutory price adjustment right, commercial end consumers and private households may come under severe financial pressure as winter approaches.
To mitigate this risk, the recent amendments to the Energy Security Act introduce a statutory authorization of the government to issue a regulation by which a gas price surcharge would be applied. The regulation could already be issued if a significant decrease of the amounts of gas imports to Germany is imminent, i.e., prior to a declaration of such significant decrease by the Bundesnetzagentur which (see above) is a condition for the statutory price adjustment rights. After the entry into force of a respective regulation by the government the statutory price adjustment rights could no longer be exercised. The surcharge ultimately to be borne by end consumers would distribute the financial burden more evenly among end consumers than a statutory price adjustment mechanism applying to bilateral gas supply contracts.