After the end of the gas levy, the introduction of a gas price and electricity price cap was announced by the federal government on 3 November 2022. 

On 29.11.2022, the draft laws for the introduction of price brakes for grid-bound natural gas and heat as well as for the introduction of an electricity price brake were ready.

The intention is to relieve the burden on private households and businesses from 1 March 2023 until 30 April 2024 at the latest. A retroactive effect for the months of January and February 2023 has been provided for in the draft laws. 

The gas and heat price brake is essentially based on the following cornerstones:

  • For private households and companies with a gas consumption of less than 1.5 million kWh per year, as well as care facilities, research and educational institutions, the gas price is to be capped at 12 ct/kWh (incl. all taxes, levies, surcharges and grid fees). Applies to 80% of the previous year's consumption
  • For industrial customers, the gas price is to be capped at 7 ct/kWh (excl. all taxes, levies, surcharges and grid fees) and for heat at 7.5 ct/kWh. Applies to 70% of the previous year's consumption. 

The resulting budgetary expenditure is estimated at approximately 56 billion euros for the years 2023 and 2024. 

The electricity price brake, on the other hand, is based on the following cornerstones:

  • The electricity price for private consumers as well as companies (with an electricity consumption of up to 30 000 kWh per year) is capped at 40 ct/kWh (incl. all taxes, levies, surcharges and grid fees). This applies to the basic demand of 80% of the historical consumption. 
  • For consumers with more than 30,000 kWh of historical annual consumption (mainly medium-sized and large companies), the limit is 13 ct/kWh (excl. taxes, levies and surcharges) for 70 per cent of the historical consumption

The financing of the electricity price brake is to take place predominantly by skimming off so-called surplus revenues, whereby it is assumed that interim financing of approx. 43 billion euros will be necessary from the federal budget.

In common parlance, surplus revenues are understood as so-called "windfall profits". Due to the merit order, these "windfall profits" mainly accrue to producers with low generation costs. Thus, the draft law provides for a levy of 90% of the surplus revenues from energy generation by wind power, photovoltaics, hydropower plants, waste incineration plants, nuclear power plants, mineral oil and lignite power plants. The exact determination of the levy amount per generation technology is complex and enables the producers to take into account effects from forward market transactions in the determination of surplus revenues. The purpose of taking this into account is not to unilaterally disadvantage generators for early hedging of their marketing of the energy to be generated. Futures market transactions for the purpose of proprietary trading, on the other hand, cannot be included in the determination of surplus revenues.

Particular attention should be paid to the installed capacity of a generation plant above which a levy is envisaged. For renewable energy plants, a levy is already applied from an installed capacity of 1 megawatt. The same requirement also applies to combined heat and power plants. Only producers who consume the electricity themselves without using a grid are exempt from the levy. According to current estimates, this regulation will lead to companies with their own generation - for example, from a photovoltaic system on the production halls and an installed capacity greater than 1 megawatt - being subject to the surplus revenue levy. The reason for this is that, as a rule, the grid is used and it is not possible to store the energy completely in the company's own battery storage.

Since the levy is intended to be retroactive from 01.12.2022 and the first levy period was defined from 01.12.2022 to 31.03.2023, this may also result in an obligation for the companies to form provisions in the financial statements as of 31.12.2022.

Finally, both the drafts for the gas and heat price brake as well as the electricity price brake provide for numerous audit obligations of the companies, energy producers, energy suppliers and grid operators, for which an external auditor (for example an auditing company) is to be appointed. Some of these audits do not have to be carried out until 2024, but the draft legislation also provides for audits that have to be completed by 31.07.2023, which is expected to require a high level of audit effort.

From an energy industry perspective, it should be noted with regard to the electricity price brake that, in our opinion, specific situations can result in which it may be avoided for certain generation technologies to produce energy and feed it into the electricity grid, as the levy mechanism has a strongly disadvantageous effect in these specific situations. This is not conducive to security of supply in Germany. The levy mechanism can also lead to an asymmetrical payment profile of individual electricity marketing and make it unattractive for producers in the future.

Your Finance and Treasury Management team strongly recommends early consideration of the provisions of both draft laws and the preparation of an impact analysis for the respective company.

Source: KPMG Corporate Treasury News, Ausgabe 128, Dezember 2022
Ralph Schilling, CFA, Partner, Head of Finance and Treasury Management, Treasury Accounting & Commodity Trading, KPMG AG 
Moritz zu Putlitz, Manager, Finance and Treasury Management, Treasury Accounting & Commodity Trading, KPMG AG