Germany's cabinet has approved two laws capping gas and electricity prices from 2023, with the so-called power price brake draft postponing a windfall tax on generators to Dec. 1, the energy ministry said Nov. 25 after market close.
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A draft dated Nov. 22 backdated windfall tax measures to Sept. 1 when gas and power price spikes prompted market intervention plans in Berlin.
Germany's parliament is to approve the laws by Dec. 16 to allow utilities time to implement the reduced tariffs.
Industry gas tariffs are set to be capped at Eur70/MWh for 70% of 2021 consumption from Jan. 1, 2023.
Residential gas tariffs will be capped at Eur120/MWh from March backdated to apply for January and February.
December is already covered by a separate law, with the government to foot gas and heating bills.
The draft law for gas estimates the cost at around Eur56 billion from January 2023 until April 2024.
Platts, a unit of S&P Global commodity Insights, last assessed TTF gas for 2023 at Eur132.33/MWh, down from a record Eur303.55/MWh on Aug. 26.
GERMAN GAS, POWER PRICE CAPS (Eur/MWh)
|Portion of consumption||70%||80%|
Source: Draft law Nov. 25
Power price brake
Electricity tariffs for industry are to be capped at Eur130/MWh for 70% of consumption and Eur400/MWh for 80% of 2021 consumption for households.
Income from the windfall tax on inframarginal power generators and income from renewables registered via the EEG green energy account are set to help finance reduced power tariffs after Berlin scrapped the green energy levy.
The EEG levy paid by consumers to finance renewables over the past decades made German household power bills some of Europe's highest despite low wholesale prices until 2021.
Wholesale prices spiked Aug. 26 to a record Eur985/MWh for Cal 2023 but have eased since, trading mid-November briefly below Eur300/MWh, EEX data show.
The draft law also includes provision for a cash injection of Eur12.8 billion to keep 2023 grid fees on par with 2022 despite sharply higher cost estimates by grid operators due to higher balancing costs.
The draft sets various thresholds for inframarginal generators above which 90% of revenue will be taxed.
For offshore wind and 2023 nuclear this is set at Eur130/MWh.
Lignite coal, Germany's single biggest source of electricity, it is set at Eur60/MWh (plus CO2 costs) for most units and Eur82/MWh (plus CO2 costs) for units either returning from reserves or agreeing to an early 2030 closure date.
Caveats apply to hedged volumes, renewables sold under PPA contracts, or green assets operating on a merchant basis.
Almost all German wind and solar plants are registered under the EEG system.
Data for October shows 86 GW of renewables registered as direct marketing receiving sliding premium payments.
Some 12.5 GW opted out receiving merchant income on a monthly basis.
The temporary measures are to apply until June 30, 2023, but regulation could extend measures to April 2024, it said.
Grid regulator BNetzA is to monitor the implementation of windfall tax payments.
Analysts at S&P Global forecast German capture prices for onshore wind to average around Eur156/MWh for the December 2022 to June 2023 period, while solar is forecast to average around Eur182/MWh, according to a monthly report dated Nov. 17. Wind and solar capture prices averaged around Eur214/MWh in September and October.
GERMAN WINDFALL TAX THRESHOLD DRAFT LAW
|Lignite||60 (plus CO2 costs)|
|Lignite (reserves, early closures)||82 (plus CO2 costs)|
|Nuclear (until Dec. 2022)||70|
|Nuclear (until April 2023)||130|
Source: Power price brake draft law (dated Nov. 25)
The measures recommended by a gas price expert commission replacing a planned gas levy maintain incentives for households and industry to reduce consumption.
German electricity demand in October fell 9% on year after a 4% drop in September with demand declines on par with the pandemic downturn in 2020, utility association BDEW said Nov. 18.
Gas consumption plunged 23% on year in October not adjusted for temperatures.
Colder temperatures late November saw demand gains, but well below long-term averages when adjusted for temperature.
The measures planned by Berlin broadly align with EU regulation to cut gas and electricity demand as well as the Eur180/MWh approved threshold for inframarginal windfall taxes.
Debate about a cap on wholesale gas prices continues with member states advocating a more robust level than the Eur275/MWh proposed by the European Commission.
The coalition in Berlin agreed a Eur200 billion debt plan to finance the measures in addition to Eur95 billion support measures to help reduce the impact from record high energy costs on German consumers, the BMWK ministry said.