Relief provisions to address rising energy prices
An overview of the legal provisions
At the first stage of the package of measures, on 14.11.2022, the Bundesrat approved the Act on Emergency Aid for End-Consumers of Grid-Bound Natural Gas and for Heating Customers (abbreviated to: Natural Gas and Heating Emergency Aid Act, Erdgas-Wärme-Soforthilfegesetz, EWSG), which had been adopted by the Bundestag (lower house of the German parliament) on 10.11.2022. This is supposed to bridge the period until the price brakes for gas and heating come into force.
Then in the coming year, at the second stage, the so-called ‘price brakes’ for gas, heating and electricity will be implemented via a Natural Gas and Heating Price Brakes Act (Erdgas-Wärme- Preisbremsengesetz, EWPBG). According to information about the draft version, which has not yet been published, the price brakes for industrial gas and heating customers will already apply from January 2023. However, it is likely that the publication of the official draft of the EWPBG will be deferred on account of delays in the political process.
Package of measures at the first stage
Implementation of emergency aid
The emergency aid is aimed at end-consumers of natural gas for their own consumption. In principle, there will thus also be financial support for the use of natural gas in commercial contexts (e.g., to heat sales premises). Emergency aid is only precluded for natural gas used for the commercial operation of electricity and heat generation plants.
Gas or heating customers will not have to file an application to receive the financial support because suppliers will be legally obliged to credit the relevant amounts of relief. The funding for the financial support will be provided by the public sector although the processing of the payments will be carried out entirely by the suppliers.
Amount of financial support
The amount will be determined independently of the current usage so that consumers will continue to be motivated to save energy. According to information from the Federal Ministry for Economic Affairs, the relief will be calculated on the basis of one-twelfth of annual consumption in 2022. For the calculation it will be necessary to differentiate between the gas and heating sectors.
In the gas sector a distinction is made between SLP customers (= gas consumption invoiced via standard load profiles [in German: Standardlastprofile, SLP]) and RLM customers (companies with real-time metering [in German: registrierender Leistungsbemessung, RLM] whose annual consumption per withdrawal point does not exceed 1.5 million kWh). For SLP customers the support will be based on one-twelfth of the annual consumption forecast by the gas supplier in September 2022. By contrast, for RLM customers, one-twelfth of the measured withdrawal from the grid from November 2021 up to and including October 2022 will form the basis for the calculation. The value that is determined will be multiplied by the gas price contractually agreed as at 1.12.2022.
In the case of heating supply, the relief for December 2022 will be in the form of a lump sum payment essentially based on the amount of the instalment paid in September.
Emergency aid for renters
For private households with rental contracts that have not concluded their own agreements with energy suppliers and whose energy consumption is covered by their apartment service charges, there are plans for detailed special rules that will depend on the contractual arrangements with the landlord. The residents will thus only receive their emergency aid together with their next heating cost statement, for which landlords have a period of one year. However, the aim is also to provide relief for these households from price increases as promptly as possible.
Package of measures at the second stage
Implementation of the price brakes
The financial support under the EWPBG is expected to be processed according to a mechanism similar to the one for emergency aid for natural gas customers. Here, too, an amount of relief to be determined by the supplier will be credited monthly to gas or heating customers. There are plans for the price brakes to apply from March 2023 up to and including April 2024, although customers will indeed be provided with relief retroactively for January and February 2023 to the same extent.
Amount of the price brakes
The draft of the EWPBG provides for a specific portion in the amount of 80% of annual consumption (industry: 70%) where the price will be capped. The contractually agreed price will apply to the remaining consumption volume that exceeds this quantity. For the portion where the prices will be capped, the basis will be a gross gas price of 12 ct/kWh and a gross heating price of 9.5 ct/kWh. To determine the price brake for electricity, a distinction will be made between households and smaller companies as well as larger metered companies. When determining the price brake for electricity for households and companies, an energy rate of 40 ct/kWh for 80% of historic consumption will form the basis of the calculation. For larger metered companies, an energy rate of 13 ct/kWh will be applied to a 70% share of historic consumption.
Financing of the price brakes
The price brakes for gas will be financed by skimming off windfall profits in the area of renewable energies, mine gas-fired power plants, waste-to-energy plants, nuclear power plants, lignite-fired power plants and plants that burn oil. To calculate the amount of profits to be skimmed off, the plan is to use the capital costs of the operators and then to add a ‘safety margin’. Subsequently, 90% of the profits that exceed the amount calculated in this way would be skimmed off.
Outlook: According to the German Federal government, from 2023, the state relief will be taxed as a non-cash benefit in the case of households with annual income of more than €75,000. Moreover, the German federal and state governments are planning to implement a hardship provision for small and medium-sized enterprises that, despite the price brakes on electricity and gas, have been particularly badly affected by increased energy prices.