On 15 December 2022, the Bundestag passed the gas and heat price brake in order to curb rising energy costs. This will be supplemented by emergency aid granted for December 2022. And it is not just consumers who will benefit from these measures, companies will too.
The following aims to answer key questions about these measures:
I. What are the legal regulations behind the gas and heat price brake?
Step 1: On 10 November 2022, the Bundestag adopted the Gas and Heat Emergency Aid Act (Erdgas-Wärme-Soforthilfegesetz, “EWSG”), and this came into force on 19 November 2022. Household customers and businesses with an annual consumption of up to 1.5 million kWh will benefit from emergency aid for gas and heat costs in December 2022. This is supposed to bridge the period until the gas and heat price brake comes into force.
Step 2: The gas and heat price brake has now also been introduced in a second step by the Gas and Heat Price Brake Act (Erdgas-Wärme-Preisbremsengesetz, “EWPBG”). For SMEs with low to medium gas consumption, the price brake will not apply until March 2023, but is then to be applied retroactively to the months of January and February 2023. For industrial gas and heat customers (“industrial customers”), the price break will already apply from January 2023.
II. Who will benefit from these measures?
1. Gas and Heat Emergency Aid Act (EWSG)
The emergency aid is geared towards end consumers of gas, i.e. natural or legal persons who purchase gas for their own consumption. Companies will benefit from this if their gas consumption is billed via standard load profiles (Standardlastprofile, “SLP”) or, in the case of real-time metering (registrierende Leistungsmessung, “RLM”), if (not: insofar as) their annual consumption per withdrawal point does not exceed 1.5 million kWh. This limit was chosen because RLM customers with consumption levels in excess of 1.5 million kWh are generally designated as industrial customers, which are not to receive support under step 1. Furthermore, the emergency aid is not intended for end consumers using gas for the commercial operation of electricity and heat generation plants, which means that electricity power plants in particular are not eligible for this. If a company uses gas for other commercial purposes (e.g. to heat its sales premises), this in itself will not rule out the possibility of the company benefitting from the aid package.
In the heat sector, customers of heat supply companies will also receive the emergency aid if (not: insofar as) their annual consumption does not exceed 1.5 million kWh (per withdrawal point). However, as an exception, the emergency aid may be granted to particularly vulnerable consumers (e.g. hospitals) even if they exceed the limit.
2. Gas and Heat Price Brake Act (EWPBG)
This Act is intended to cover industrial customers in addition to the household customers and businesses covered by the EWSG. Support for companies that are already eligible under step 1 is not conditional on the emergency aid for December 2022 actually having been received.
III. How will the emergency aid or price brake work?
1. Gas and Heat Emergency Aid Act (EWSG)
Gas or heat customers do not have to apply in order to receive the financial support. Instead, suppliers are obliged by law to credit the relevant amount. Taking the emergency aid for gas customers as an example, this means that the gas supplier must credit the relief amount to gas customers for each of their withdrawal points. The credited amount can be offset against the actual contractual costs in a number of ways; SLP customers (only) will receive a provisional benefit from the gas supplier, i.e. the instalment for December does not have to be paid. The support is financed by the German government, but it is the suppliers which are solely responsible for ensuring that entitled consumers benefit from this.
However, although natural gas suppliers generally have a legal obligation in this regard, companies should check their eligibility independently and monitor the process closely so that they can quickly rectify any application errors made by natural gas suppliers – which are already bogged down by red tape. If SLP customers are not required to pay the instalment for December, they should take care to ensure that a payment is not triggered unintentionally (e.g. because a standing order is not suspended).
RLM gas customers must keep in mind that they bear some responsibility for receiving the emergency aid, as they must inform their suppliers by 31 December 2022 that they have fulfilled the requirements.
2. Gas and Heat Price Brake Act (EWPBG)
The financial support provided under the EWBPG will be handled using a mechanism similar to that for the emergency aid for gas customers. A relief amount to be determined by the supplier will credited to the gas or heat customer on a monthly basis in this case, too; RLM customers bear more responsibility because they are required to make various notifications to their suppliers. Certain end consumers, for example, must notify their suppliers if, by way of exception, they are not they are not eligible under sanctions law or because they themselves are energy producers. Cooperation with authorities may also be necessary, also by way of exception, primarily to determine special, qualified eligibility to receive support.
Large industrial consumers often do not procure natural gas from natural gas suppliers, but rather directly from a wholesaler, on exchanges, or on OTC platforms. Relief for such consumption will not be provided via contracting partners on the energy market; instead, the end consumer itself will be treated as a natural gas supplier and must assert claim to the reimbursement of monthly relief payments by the Federal Republic of Germany, to which a quarterly advance payment entitlement applies. There are additional circumstances that may apply depending on corporate structure; for this reason, it may be necessary to submit an application.
IV. How is the amount of support calculated?
1. Gas and Heat Emergency Aid Act (EWSG)
The Act does not specify an absolute figure, but ultimately aims to cover the gas costs for one-twelfth of 2022 and therefore the gas instalment payment for December 2022. In the gas sector, this will not be based on the actual gas consumption in December 2022, but rather on one-twelfth of the annual consumption forecast by the gas supplier in September 2022 (for SLP customers) or one-twelfth of the measured withdrawal from the grid from November 2021 up to and including October 2022 (for RLM customers). This figure will be multiplied by the gas price contractually agreed as of 1 December 2022 (including labour-related and other price components accruing pro rata for December 2022).
In the heat sector, contracts are structured differently to those for networked gas, and the relief for December 2022 will therefore be granted in the form of a one-off payment based on the amount of the instalment paid in September 2022.
2. Gas and Heat Price Brake Act (EWPBG)
The price brake is to apply for the entire year 2023 at least, and the Act contains an option to extend that period through April 2024.
The EWPBG lays down a guaranteed gross gas price of 12 ct/kWh (industrial customers: 7 ct/kWh) for a certain percentage of gas consumption, with the relief amount to be credited on a monthly basis. The guaranteed price will apply to 80% of the annual consumption (industrial customers: 70%) forecast by the gas supplier for the withdrawal point concerned in September 2022, with the contractually agreed kWh price applying to any gas consumption above this. The same mechanism is to apply to heat. The guaranteed gross heat price is 9.5 ct/kWh gross (industrial customers: 7.5 ct/kWh net) applicable to 80% of the annual consumption forecast by the heat supplier in September 2022 or, for industrial customers, 70% of the heat quantity measured for the 2021 calendar year at the withdrawal point concerned.
The relief amount received does not have to be paid back, even if the actual consumption in the year-end statement differs from the assumed amount. However, the relief will be granted subject to the proviso that it may be recovered.
Finally, it should be noted that for reasons relating to EU state aid law, absolute and relative maximum relief limits will apply under the EWBPG that must not be exceeded overall (several withdrawal points are not to be considered separately). The maximum permissible relief amount includes all state aid for additional costs due to the exceptional increase in energy prices – and therefore also includes relief granted under the electricity price brake, for example. The maximum limit is EUR 4 million (absolute amount) for regular companies, or 50% of crisis-related additional energy costs. Final consumers who are determined by a (federal) audit authority yet to be specified (likely the Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle, “BAFA”)) to be particularly affected by high energy prices can receive support of up to EUR 100 million or 40% of crisis-related additional energy costs. If the audit authority additionally determines that a final consumer is energy intensive, other arrangements apply. In certain cases, support can total EUR 150 million or 80% of the crisis-related additional energy costs. There are various obligations to cooperate with and notify suppliers and the audit authority that must be observed; non-adherence to these obligations is subject to fine.
V. What framework conditions must be observed?
The right to be credited the amount of the relief arises directly from the Act if the prerequisites laid down therein are met. Unlike the coronavirus assistance, the financial support is not dependent on additional funding guidelines.
However, the EWPBG itself contains a series of restrictions. For reasons relating to state aid law, no support may be granted if EU sanctions have been imposed on the company or its affiliated persons, organisations or institutions. The receipt of relief of more than EUR 2 million is linked to a job retention obligation. After much wrangling, the Bundestag finally also passed a limited ban on bonuses and dividends that will only apply once a relief amount of EUR 25 million has actually been claimed. From this amount onwards, variable compensation components and increases in the fixed salaries paid to members of corporate bodies on or before 31 December 2023 will only be able to be paid if they were agreed before 1 December 2022. If a relief amount in excess of EUR 50 million is utilised, the payment of variable compensation components and increases in fixed salaries paid to corporate bodies as well as the distribution of dividends is generally excluded until after 31 December 2023.
VI. European gas price cap
The European Union is working in parallel on the introduction of a gas price cap, causing controversy among Member States. The European Commission has presented a draft regulation introducing a market correction mechanism that is being negotiated by EU energy ministers. The market price correction mechanism takes a different approach than the German gas price brake. While the gas price brake accepts market prices and aims to dampen them by providing subsidies to final consumers, the gas price cap represents direct intervention in market prices. It foresees temporarily capping the price of month-ahead derivatives under the TTF European Gas Spot Index at EUR 275 if prices remain above that threshold for a period of two weeks and exceed a pre-determined ratio against LNG prices. In theory, the two mechanisms can exist alongside each other. However, it is not yet clear how they will act in combination or what economic policy consequences the introduction of the market correction mechanism will have.
VII. Is additional official information available?
Apart from press releases, the Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz) has published a brief FAQ list concerning the December emergency aid (as at 10 November 2022; only available in German) The list is available in German at this link (last accessed on 16 December 2022).
The BMWK has published a list of FAQs on the application of the EWPBG (as at 15 December 2022). The list is available in German at this link (last accessed on 16 December 2022).
The explanatory memoranda and the entire consultation processes for these Acts can be found at the following links (last accessed on 16 December 2022; only available in German):
- https://dip.bundestag.de/vorgang/gesetz-%C3%BCber-die-feststellung-des-wirtschaftsplans-des-erp-sonderverm%C3%B6gens-f%C3%BCr-das/290335
- https://dip.bundestag.de/vorgang/gesetz-zur-einf%C3%BChrung-von-preisbremsen-f%C3%BCr-leitungsgebundenes-erdgas-und-w%C3%A4rme/294018?term=Erdgas-W%C3%A4rme-Preisbremsengesetz&f.wahlperiode=20&rows=25&pos=1
Forward