(Bloomberg) -- Germany will introduce a cap on gas and electricity prices for companies and households next year as Europe’s largest economy seeks to contain the fallout from Russia’s moves to slash energy supplies.
The package of measures, which will cost the government about €54 billion ($55.5 billion), will go into effect on March 1, according to government officials. The subsidies will be paid retroactively for January and February, and gas consumers will also receive a one-time state subsidy for December, said the officials, who asked not to be identified in line with briefing rules.
The aid for power bills will be partly financed by a windfall tax on electricity profits, which the government expects to raise a double-digit billion-euro amount, the officials said on Tuesday. Almost all forms of power generation, including renewables, will be charged with the exception of gas and hard coal. Many companies have warned that the tax, which will be imposed retroactively to September, could impact investments in the sector.
Germany is the epicenter of Europe’s energy crisis. Decades of building up a reliance on Russia backfired after the Kremlin slashed deliveries in retaliation over sanctions related to the war in Ukraine. Chancellor Olaf Scholz’s administration has implemented a series of steps to secure supplies to make it through the winter.
For private households, gas prices will be capped at 12 cents per kilowatt hour for 80% of consumption, based on last year’s usage levels. For industrial consumers, 70% of gas consumption will be subsidized. Power prices will be capped at 40 cents per kwh. The caps will be in place through April 2024.
The start of price brakes in March might mean a relief for energy companies, which have said it would be unfeasible to organize operations in short notice until January, as first planned by the government.
Retroactively from Sept. 1, until at least the end of June, the government will tax power plants on profits generated “solely by the energy crisis,” according to a draft law.
Skimming off profits retroactively will “suffocate” renewable energy companies, said opposition CDU lawmaker Andreas Jung, who also criticized the exemption of polluting hard coal from the regulation.
Having a retroactive levy could weaken regulatory visibility, said Bloomberg Intelligence analyst Patricio Alvarez. “This could hurt new investments, at least temporarily, by clouding the regulatory landscape, lowering the return profile and increasing the cost of capital to fund new projects,” she said.
The European Commission’s emergency plan enables member states to recover the difference when power prices go above a cap of €180 per megawatt hour. However, the impact of Germany’s proposals is uncertain as the threshold for skimming profits remains unclear.
Earlier plans by Economy Minister Robert Habeck to prohibit bonus payments for companies in return for the aid were dropped. The restriction will now only apply to companies which received a direct capital injection from the state, such as gas giant Uniper SE.
Before it can take effect, the package will need to pass the upper house of parliament on Dec. 16, the officials said.
--With assistance from Josefine Fokuhl.
(Updates with windfall tax from seventh paragraph)
©2022 Bloomberg L.P.
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