Windfall levy to finance Germany’s power price subsidy set to apply later than planned - report

The government’s plan to scoop up windfall profits by energy companies in Germany to finance an electricity "price brake" could be introduced much later than initially announced, and only apply to profits made since November instead of March 2022, business daily Handelsblatt reported, citing a draft from the economy and climate ministry (BMWK). Energy companies had heavily criticised the plans, arguing they could deter investors from putting their money into sorely needed new renewable power installations. However, the plan still stipulates that 90 percent of the “random” gains companies made beyond a certain threshold thanks to skyrocketing prices that were not linked to higher production costs will be scooped up. The measure is meant to flush about 30 billion euros into government coffers, which can then be used to curb the price hike for electricity as well as for natural gas, the article said. The threshold is based on reference proceeds adjusted for different generation technologies. For solar and wind power installations, this would be the guaranteed support agreed under the Renewable Energy Act (EEG), or a lump sum of ten cents per kilowatt hour in case they don't receive support, plus a “security surcharge” of three cents. “The plan is complicated and applying the levy on profits retroactively could also be challenged in court,” Handelsblatt commented.

Germany’s renewable energy lobby group BEE criticised the new concept: “A complex mechanism that is prone to failure for scooping up  revenues instead of profits risks causing grave distortions in the renewable power sector,” BEE head Simone Peter argued. The plan to intervene in existing business models by applying the levy retroactively had already led to a massive drop in bioenergy investments, and more than 90 percent of solar power project developers fear that the regulation could render their projects uneconomical, she argued. Besides renewable power installations, the levy is also set to apply to nuclear and lignite-fired power plants, as well as to plants burning waste and refinery products. “Operators of these installations are making particularly high profits, as they produce power relatively cheaply,” the article said. The government intends to stick to the current merit-order principle, by which the most expensive form of power generation used (currently usually natural gas) is setting the price for the whole market, which allowed operators of cheaper technologies to achieve high profits in the first place.

Both Germany and the EU plan to introduce a levy on windfall gains by electricity producers, as their profit margins have multiplied in the wake of rising energy prices, while many consumers face difficulties in paying their energy bills. Renewable power groups have criticised the plans,  arguing it could "permanently poison the investment climate" for renewable energy in the country. Germany's government so far has set aside 83 billion euros for brakes on the price of electricity and gas.