New law allows huge gas price increases

Created: 05/22/2022, 15:08

By: Matthew Schneider

If the pressure in the gas lines drops, it could be expensive for consumers.

© Axel Heimken/dpa

The new Energy Security Act was passed on Friday.

The decision threatens Russian gas companies with expropriation – and German consumers with an unprecedented price explosion.

A prominent law was decided in Berlin on Friday that is intended to facilitate the expropriation of Russian energy companies in Germany.

However, §24 of the amendment to the Energy Security Act of 1975 has received less public attention: According to this, suppliers should be allowed to pass on the costs to their customers in the event of a gas shortage.

This could multiply the heating costs of many households in one fell swoop.

Why are gas prices rising?

It is the business of the energy suppliers - such as municipal utilities - to average a competitive consumer price from the fluctuating gas exchange prices.

This is usually achieved through long-term price agreements with the wholesalers.

However, due to the rapid economic recovery after the Corona low of 2020, the stock exchange prices for natural gas have almost quintupled as of today.

Suppliers therefore have to pay dearly for every cubic meter of gas that exceeds the quantities ordered.

If customers have existing contracts whose conditions cannot be changed, the suppliers have to pay the difference out of their own pockets – even if they make a loss.

That is exactly what should change now, according to the draft of the new energy security law, which is available to our newspaper and on which the Federal Council will decide on Friday.

Gas emergency level allows price increases

"If the gas emergency level is declared due to reduced gas imports from Russia, energy traders and suppliers can pass on the increased procurement costs to consumers - even with existing contracts," explains Detlef Fischer, head of the Association of Bavarian Energy and Water Suppliers, the content of the paper.

This is necessary because in such a case the suppliers' existing supply contracts would be canceled and they would have to procure the gas again - at extremely high prices - on the exchanges.

"The higher prices to be paid for this have to be borne by all customers," explains Fischer. "If that doesn't happen, the gas suppliers will go bankrupt and the supply of natural gas is no longer guaranteed.

That would be the super meltdown next winter.”

Price increases vital for system survival

According to the draft law, utilities would only have to announce price increases a week in advance.

Fischer considers this to be appropriate: "The suppliers cannot wait any longer, otherwise they would no longer be able to pay their bills to the upstream suppliers due to their own liquidity bottlenecks."

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However, the measure does not apply indefinitely: "The good news in bad times: As soon as the gas shortage ends, the energy supply companies have to lower the price back to an appropriate level," says Detlef Fischer.

1600 euros more heating costs are possible

What alternatives are there?

"None," says the proposed resolution succinctly, and the responsible committee advises acceptance.

The paper is currently being discussed in Parliament, changes are still possible.

The fact that consumers have a special right of termination in the event of price increases is little consolation, because all providers have to shop on the same exchanges.

Prices there have settled at a high level.

While a kilowatt hour cost around two cents in 2019, it is now between nine and eleven cents.

In purely arithmetical terms, this means 1,600 euros in additional annual costs for a sample consumption of 20,000 kilowatt hours.

It is uncertain where prices will go in the event of an actual gas shortage.

In December, prices on the spot markets, where quotas can be procured at very short notice, reached almost 20 cents per kilowatt hour.

"These were purely psychological prices," explains Tobias Federico, head of the energy consulting agency Energy Brainpool.

"Should there be a physical shortage of gas, moon prices of up to 50 cents are also possible".

Expert: People are not aware of the problem

For Detlef Fischer it is clear that many consumers are not yet aware of the reality on the markets: "For the first time since 1975, the Energy Security Act has been extensively adapted again at high speed." For industry experts, this shows the seriousness of the situation.

"Most people in our country don't realize that.

They continue to climb into their SUV and onto the plane without worrying, as if the world were still the same,” says Detlef Fischer.

The authors of the draft resolution are aware of the risk of “unreasonable additional financial burdens for end consumers”, i.e. for private households and industry.

In the event of a gas shortage, they call for “quick, unbureaucratic and targeted measures” to cushion social hardship and mass closures.