The German government is in the final stages of agreeing internally on the introduction of a gas and power price brake (“Gas- und Strompreisbremse”). A draft of 22.11.2022 provides for the introduction of a law regulating an electricity price brake, as well as related amendments in other energy laws.

Once the internal debate within the coalition government will have been completed, the government’s proposal will be turned into a proposal for a bill from the coalition parties in the Bundestag. The parliamentary process is expected to be quick, as the gas and power price brake shall come into force on 1 January 2023.

1. Background

The extreme uncertainty about necessary gas supplies from Russia and high volatility have contributed to an enormous increase in gas prices. This has also led to an increase in electricity prices. To cushion the resulting considerable burden on companies and consumers, the German government is planning a gas and electricity price cap. Along with a number of other measures, this will be part of the German Economic Defence Shield (“wirtschaftlicher Abwehrschirm”) of 200 billion euros. The individual subsidies granted shall be based on the state aid limits permitted in the EU Commission’s Temporary Crisis Framework to support the economy in context of Russia's invasion of Ukraine (“TCF”).

2. Key elements of the currently discussed price brake package

2.1 Gas Price Brake

Households and small businesses consuming less than 1.5 million kWh of gas shall receive 80% of their projected annual consumption in September 2022 at a guaranteed gas gross price of 12 ct/kWh. Household customers also benefit from a previously introduced VAT reduction, as the 12 cents already include the reduced 7% VAT.In contrast, companies with gas consumption of more than 1.5 million kWh per year shall receive 70% of their gas consumption, based on their consumption in 2021, at a guaranteed net working price of 7 ct/kWh. For consumption above these quotas, the contractually agreed price applies in each case. The limitation to 70 or 80 % of the respective consumption is intended to provide an incentive to save energy. Those who save additional energy (over and above the quota) benefit all the more, as the previous deduction was calculated on the basis of the higher price and thus a higher repayment can be made.

2.2 Power Price Brake

The electricity price is to be capped at a certain amount for households and small businesses, as well as for industry. For households and small businesses, this is 40 cents gross/kWh and applies to 80% of the previous year's consumption. For industry, the amount is 13 cents net and can be applied to 70% of the previous consumption. “Industry” is set as a company whose electricity consumption exceeds 30,000 kWh per year. If this amount is not reached, the 40 cents/kWh applies.

The relief provided by the power price brake is partly refinanced by skimming off windfall profits in the electricity market. The Federal Government is thus implementing the requirements of the EU Council Regulation (EU) 2022/1854 on an emergency intervention to address high energy prices. To determine the amount of windfall profits from the electricity generation of individual power plants, information is needed on the quantities generated, the production costs and the prices achieved on the market. The power plant operators can therefore either open the contracts for their individual power plants or the revenues are calculated using average prices on the spot and futures market.

It remains to be seen when and with what adjustments the final law introducing the gas and power price will enter into force.