July 29, 2022

Germany: Heavy Statutory Gas Price Surcharges for Commercial and Private End Consumers Presumably as of October

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GERMANY: HEAVY STATUTORY GAS PRICE SURCHARGES FOR COMMERCIAL AND PRIVATE END CONSUMERS PRESUMABLY AS OF OCTOBER

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 in early July 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 in early July by parliament just before the parliamentary summer break included 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 were eased. Further, the amendments to the Energy Security Act introduced a statutory authorization of the government to issue a regulation by which a gas price surcharge would be applied. The regulation can be issued if a significant decrease of the amounts of gas imports to Germany is imminent.

Immediately after parliament had adopted the amendments to the Energy Security Act, Uniper, one of the large gas importers in Germany and the largest German importer of Russian gas, announced 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.

On July 22, 2022, it was announced that the German government would acquire newly issued shares in Uniper in a capital increase and thereby acquire a shareholding in Uniper of approximately 30%. Further, it was announced that the government had informed Uniper that it intended to introduce the gas price surcharge presumably as of October 1, 2022.

In line with this, the German government announced that it was preparing a respective regulation expected to come into force by mid-August 2022. According to the announcement, the gas price surcharge is expected to take effect from October 1, 2022 and will be valid until September 30, 2024.

As a result of the introduction of the gas price surcharge, the alternative mechanism stipulated by the Energy Security Act for passing on increased gas prices to customers, i.e., a statutory price adjustment right, will not become effective. If the statutory price adjustment right, which had been introduced by amendments to the Energy Security Act earlier this year, would have taken effect, customers of gas suppliers who had previously purchased a lot of gas from Russia would have been confronted with very sharp increases in gas prices. By contrast, customers of gas suppliers who had purchased less gas from Russia would have been less affected by price increases.

By introducing the gas price surcharge the government ensures that the financial burden is distributed more evenly among end consumers than it would have been the case under a statutory price adjustment mechanism applying to bilateral gas supply contracts. In the view of the government, the unequal distribution of the costs of reduced gas supplies from Russia as a result of a statutory price adjustment right would have led to socially and economically problematic imbalances and distortions of competition.

The precise amount of the surcharge is yet unknown. It is expected to be announced by mid-end August. The Federal Minister for Economic Affairs stated that the surcharge may be in a range of 1.5 to 5 cents per kWh.

Authors and Contributors

Mathias Stöcker

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