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Germany’s power price subsidy will be financed by a windfall levy, but it will not take effect until later than originally expected

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According to a report in the business daily Handelsblatt, which cited a draft from the economy and climate ministry, the German 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 it would only apply to profits made since November rather than March 2022. This was based on a draft from the ministry. The plans had been heavily criticized by the energy companies, with the argument that they could discourage investors from putting their money into new renewable power installations, which are desperately needed.

On the other hand, the plan stipulates that ninety percent of the “random” gains that companies made beyond a certain threshold as a result of skyrocketing prices that were not linked to higher production costs will be scooped up. This is despite the fact that these gains were not linked to higher production costs. According to the article, the purpose of the measure is to bring approximately thirty billion euros into the government’s coffers. These funds can then be used to control the increase in the cost of both electricity and natural gas. The threshold is calculated using the reference proceeds modified to account for the various generation technologies. This would be the guaranteed support agreed upon under the Renewable Energy Act (EEG) for solar and wind power installations, or a lump sum of ten cents per kilowatt hour in the event that they don’t receive support, in addition to a “security surcharge” of three cents for each kilowatt hour produced. According to Handelsblatt’s analysis, “The plan is complicated, and it’s possible that applying the levy on profits retroactively could also be challenged in court.”

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The lobbying organization for renewable energy in Germany known as BEE was not a fan of the new idea. “A complex mechanism that is prone to failure for scooping up revenues instead of profits risks causing grave distortions in the renewable power sector,” the head of BEE 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. Moreover, the plan to intervene in existing business models by applying the levy retroactively had already led to a massive drop in bioenergy investments. In addition to renewable power installations, other types of power plants, such as nuclear and lignite-fired power plants, as well as plants that burn waste and products of refineries, will be subject to the levy.

According to the article, “Operators of these installations are making particularly high profits,” as a result of the relatively low cost at which they produce electricity. The government intends to continue adhering to the current merit-order principle, which states that the most expensive form of power generation that is utilized (typically natural gas at the moment) is responsible for setting the price for the entire market. This is the mechanism that enabled operators of cheaper technologies to achieve high profits in the first place. In light of the fact that electricity producers’ profit margins have expanded as a direct result of rising energy prices—at a time when many customers are having trouble meeting their monthly energy expenses—Germany and the European Union (EU) have decided to implement a tax on windfall gains made by electricity producers. Groups that support the use of renewable energy have voiced their disapproval of the plans, stating that they have the potential to “permanently poison the investment climate” in the country. To date, the federal government of Germany has put aside 83 billion euros to put the brakes on the rising cost of gas and electricity.

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