There is more anger in the industry about Habeck’s gas price brake than anyone thinks it’s good for. Even if the government’s plan was intended as a dampener against high energy loads, from the point of view of the supposed beneficiaries it is too bureaucratic and of little use. And then there is the EU.
It may be very expensive for taxpayers and yet it is not really of any use to many companies. The German gas price brake should help energy-intensive companies in particular not to get into critical situations in the face of sharply rising gas prices.
Because with such companies that consume more than 1.5 million kilowatt hours of gas, the management is quickly faced with the existential threat to the entire company if the energy costs threaten to eat up all profits. But the fact is: in some cases, the application for state aid means more danger than rescue.
Small and medium-sized companies with a consumption of less than 1.5 million kWh remain comparatively unburdened. The same rules apply to them as to private consumers. The state caps the price of gas at twelve cents per kilowatt hour – for 80 percent of consumption. Above that, the market price applies. Anyone who is now also able to significantly reduce their requirements, possibly even by twenty percent, will get away with a black eye.
The situation is completely different for large customers. On the one hand, the savings potential is low – aluminum production, cement production or iron casting cannot be operated on a small flame. In addition, unlike private consumers, there is a complicated application process and the design of the aid, which can really get a company into trouble in terms of accounting.
This is largely due not even to the German administrative system, but to Brussels requirements. When it came to negotiations for a European solution, Germany arrived with a handicap. Quick shots from Berlin, such as the provision of 200 billion euros for aid, had annoyed the partners. The other EU members saw what the Germans were doing to their medium-sized companies as distorting competition.
And so, after much back and forth, the German ideas for further aid were not well received. The EU made sure that a simple solution – such as a blanket price cap for companies of seven cents for gas – did not get into the Brussels subsidy regulations.
According to Michael Hüther, head of the Institute of German Economics, this would have been expedient: “Price signals always have an effect. The question is whether they lead to excessive demands. With the gas and electricity price brake, we are not intervening directly in the market, but in the consequential effects of gas and electricity price developments. The aim is to cushion the cost effects of companies and the purchasing power effects of private households due to the high energy prices for a limited period of time, rather than zeroing them out. And I think that’s the right thing to do in this situation.” For large companies, however, there is a different approach.
It is now necessary to ensure that all companies get the same help, so that those who were able to negotiate a cheaper gas price receive as much compensation as those who are sitting on expensive supply contracts. So there is no blanket cap. In addition, there are complicated verification rules for the consumption and orientation of the company, a drop in profits and the like, each for the past and the future.
For family entrepreneurs and medium-sized companies, the crystal ball must also be used. It should be determined now whether the profit for the current year will be below that of 2021, and if so, by how much. The year 2021 was already catastrophic for some companies, while others benefited during the lockdowns – and are only now facing sharp declines, but have to dig deep into their pockets for energy. But without a bleak outlook for 2023, there is little or nothing from the state.
And the gas price? It is again far away from the wild highs of 2022. If a company now applies for state aid, there are suddenly obligations on the balance sheet, because if you misjudge the profit, the support will have to be reimbursed later. It’s a kind of sword of Damocles over the heads of entrepreneurs. A megawatt hour of gas is currently quoted for 61 euros at wholesalers. That is significantly less than 2021/22. The price was six times as much. And that’s exactly what makes some company leaders ponder.
So now many are looking for ways to shoulder the burden without father state. At the very least, it would mean that, in addition to the economically uncertain forecasts, there would not also be millions of euros of conceivable obligations on the balance sheet.
The weather forecast is also followed closely in the company headquarters. The predominantly mild winter season so far has done much to reduce consumption in the country – and the price. Continuing with the crystal ball: How hard are small consumers to save? They also lower the price peaks.
The Ifo Institute for Economic Research is now also giving hope: “The Ifo Institute has raised its forecast for the increase in economic output for the year 2022: to plus 1.8 percent from the previous plus 1.6 percent. The third quarter of 2022 in particular was much better than expected with a plus of 0.4 percent. In the two quarters of the winter half-year 2022/23, the gross domestic product shrinks, but then it goes up again,” according to the Ifo researchers. That could just help many companies to make ends meet on their own, because a drastic slump in sales in the current year seems increasingly unlikely.
Nevertheless, one danger for the German economy remains: companies feel compelled to a not inconsiderable extent to relocate energy-intensive parts of their production to foreign locations. The customer wants it this way: buyers only accept price increases if there is a valid reason, otherwise they just go to the competition.
The food industry in particular is experiencing this, but so are medium-sized companies in the mechanical engineering and automotive sectors. Especially since foreign buyers in particular see the German aid sums and think that it’s all sunshine and roses for the supplier. A fallacy that could be expensive, possibly ruinous for smaller but specialized German companies. Consequently, the neighboring countries Austria and Switzerland appear. They completely dispense with market-distorting measures – Austria only helps needy consumers directly.
According to industry associations, the recently decided price cap at European level makes things different, just not better. It should work according to the “maximum price” scheme: From February 15, a maximum price of 180 euros per megawatt hour will apply on the virtual wholesale exchange.
As soon as this is exceeded, on three days, and is also 35 euros above the price of liquefied natural gas (LNG), the limit comes into effect for at least 20 days. Stock exchange expert Henrik Voigt thinks it’s a dangerous thing: as soon as gas exporters in Europe can no longer get adequate prices, they could divert their LNG deliveries to other parts of the world, where every tanker is very welcome.
The well-intentioned European cap then created nothing but scarcity. Voigt: “The nicest cap is useless if I don’t get any goods and my economy collapses.” Since this is a real possibility, the EU regulation now provides for a suspension of the price cap in this case. Which then makes it clear that one can confidently underestimate the effect of this instrument: In the case intended for this purpose, it is simply overridden.
*The article “Why Germany’s industry is suddenly afraid of Habeck’s gas aid” is published by WirtschaftsKurier. Contact the person responsible here.