An analysis of the gas levy

There is no doubt about the fact that gas is getting more expensive in the midst of the Ukraine conflict. This affects not only us end customers, but also large energy companies such as Uniper, Germany’s largest gas importer, who hit a rough patch due to the price hike. For this reason, the Federal Cabinet decided on Thursday (4 August) to pass the gas levy, which will remain in force for one and a half years as of October. This measure aims at saving ailing energy companies from insolvency, thus strengthening the security of supply.

Gas levy: what is that actually?

Since mid-June, Russia has been supplying significantly less gas to Europe than agreed. Due to the reduction in gas supplied by Russia, gas importers have to replace the gas by other means in order to meet their supply obligations to energy utilities. As a result of alternative procurement options being in short supply and because of the consistently tense geopolitical situation, gas prices have risen worldwide. At present, gas importers have to bear the increased purchase price themselves, which increases the risk of bankruptcies in this sector. The gas levy is intended to create a way to pass on the increased costs to consumers in order to ensure the sustained stability of supply. According to statements by Federal Minister of Economics Robert Habeck, the levy is to amount to between 1.5 and 5 cents per kilowatt hour (kWh). This would burden private households with additional costs in the order of hundreds of euros. As soon as the gas volumes supplied by Russia return to the contractually agreed volumes, the levy will be set to zero again. At least that is what the federal government is hoping for.

How is the gas levy calculated?

For all gas customers – private households as well as companies – the levy will apply from October 2022 until around April 2024. The levy is calculated by Trading Hub Europe – the market area manager for the German gas market. The gas levy is derived from the difference between the purchase prices for Russian gas and the prices for replacement procurement. 90 per cent of the calculated amount is used for the gas levy. This means that the gas importers have to cover the remaining 10 per cent. Furthermore, only supply contracts concluded before May 2022 are considered in the calculation. Moreover, the amount of the gas levy will be recalculated every three months. This will result in a changing gas levy that will fall or rise depending on the respective replacement costs.

What goals is the federal government pursuing with the gas levy?

A key political objective of the gas levy is to ensure security of supply, which is threatened by the Ukraine conflict and the associated drop in gas deliveries. The levy helps to ameliorate the existential threat the current situation poses to many gas importers.

Another objective is that the increased procurement costs of the gas importers are distributed equally among all gas customers. However, there is a problem here: a quarter of gas contracts have fixed price guarantees, according to an estimate by industry experts. These cannot be adjusted and therefore may not be subject to price increases. At the current time, the Federal Government is therefore examining a renewed amendment to the Energy Security Act in order to roll out the gas levy equally to all customers. How this will work remains to be seen.

Conclusion

The gas levy once again confronts consumers in Germany with rising energy prices. These will further burden the population, which had already been subject to increased energy prices. In connection with the gas levy, the Minister of Economic Affairs once again called on citizens to save energy. ‘All of us can do our part, and all of us are making a contribution – except for those who choose to ignore the situation,’ he said.

We wholeheartedly agree with this statement and appeal to our readers to save gas during the summer to help make things a lot easier this winter.