German plans for gas and power price cap put decarbonisation at risk - energy industry

The gas and electricity “price brakes” that Germany’s government plans to finance with scooping up windfall profits made by power producers during the energy crisis endanger the country’s decarbonisation targets, energy industry groups have warned. The draft plan tabled by the economy and climate ministry risked to “pull the rug” from under renewable power investors’ feet and “intentionally and without any need threatens the energy transition’s achievements,” said Simone Peter, head of renewable power lobby group BEE. The government plans to introduce caps on gas and electricity prices by March 2023 that take effect retroactively from January. The cap is meant to benefit households and small businesses, and would put a discount on a consumption level equalling 80 percent of last year’s use, while every additional kilowatt hour would have to be paid at current market rates. Industrial producers will receive a discount for 70 percent of their 2021 consumption level. To finance the measure, the government plans to tap into its 200-billion-euro “defence shield” for the energy crisis, and also scoop up profits of power producers retroactively from September 2022, news agency Reuters reported. The scheme is supposed to remain in place until at least June 2023, and possibly until the end of 2024.

The plan would disadvantage renewable power producers vis-à-vis fossil energy companies using hard coal or natural gas, BEE’s Peter argued, predicting that many companies would go to court if the government adopts the draft and gets parliament’s approval in December as planned. “This opens a new front and creates new uncertainty,” Peter warned. Solar power association BSW Solar argued the plan would amount to “an energy transition brake” and completely run counter to the “massive investment needs” in the renewables sector to achieve the country’s climate targets. The government failed to account for the fact that prices had also risen for new solar power projects, which -- coupled with the windfall levy -- could become a real problem for new projects planned without state support, the association said. Farmer association DBV said bioenergy production would no longer be profitable for many producers, which also faced higher costs. This meant bioenergy plants are throttled down while coal and gas-fired power production continues without being subjected to the levy. “Biogas and wood have to be excluded,” the DBV said.

Energy industry association BDEW said the price caps would be eagerly awaited by many struggling customers, which is why fast approval is necessary. The energy industry would be able to comply with plans to make the cap effective retroactively by January, but the government needed to improve the conditions for companies to do so. “The existing proposals are incomprehensible and not applicable,” BDEW head Kerstin Andreae said. The government had to better coordinate the caps on electricity and gas prices and relax rules on customer notification deadlines, she stressed. Energy market innovator association BNE said the plan would likely lead to “more bureaucracy, less competition and less innovation,” arguing that a tax on windfall profits would be a much simpler solution.