Ursula von der Leyen’s EU Commission wants to take radical measures to relieve consumers of the high energy prices. According to a legislative proposal presented on Wednesday, energy companies should give up part of their recently sharply increased profits.
This is intended to cushion states from the costs of the crisis. The companies have recently made profits that they would never have expected in their wildest dreams, said von der Leyen in a keynote address in the Strasbourg European Parliament. The proposal will bring the EU countries more than 140 billion euros to alleviate the hardship.
This type of excess profit tax has had many opponents among EU member states, including Germany. The situation has changed, however, since Russian gas supplies have fallen to virtually zero. The electricity price at German wholesalers is three to four times higher today than it was a year ago. In times like these, profits need to be shared and redirected to those most in need, von der Leyen said. The federal government is now also supporting this.
The operators of wind power and solar plants, coal and nuclear power plants are currently benefiting from the principle of pricing. According to the so-called stock exchange rule of “merit order”, increasing demand is always met with the cheapest power plant in each case. However, the last, most expensive power plant that is used in this way determines the overall electricity price. The gas power plants, which are currently extremely expensive to produce, also set the price for all cheaper systems.
Von der Leyen’s proposal aims to temporarily cap power producers on these windfall profits. By the end of March next year, revenue should be capped at 180 euros per megawatt hour. Anything beyond that is to be confiscated by the state and redistributed to consumers.
The long-term average electricity price was 40 euros per megawatt hour. Even according to the EU Commission’s proposal, electricity generators that do not burn gas would earn more than four times the usual selling price despite the price cap. After all, the current price level on the electricity exchange of just under 500 euros is being pushed down.
Some experts are critical of the use of the price cap. With a skimming off of profits of 140 billion euros, it is likely that the market design will be damaged, explained Veronika Grimm, member of the Advisory Council for the Assessment of Macroeconomic Development when asked by WELT. “But that would make it much more difficult to overcome the crisis quickly.” Because this would require “massive investments in additional capacities, which are unlikely to be made due to regulatory uncertainty.”
It is uncertain that the planned profit tax will really bring that much, said the economic wise man: “It is very difficult to estimate how much one can skim off.” Electricity is traded on the stock exchange and over the counter, both in the short and long term. “It can be assumed that there are many ways to avoid a skimming of earnings.”
Criticism also came from the lignite group Leag from Cottbus: The EU plans hindered the planned transformation into a green company. Skimming off profits means a “massive intervention in the ability of energy companies to invest.”
“The energy turnaround in Germany now needs a huge boost in order to reduce dependence on energy imports,” said LEAG CEO Thorsten Kramer: “With the support of our Czech owner, our company is ready to meet the federal government’s expansion targets for renewable energies to support multi-billion dollar investments.”
“After we had to contend with an enormous drop in prices in recent years, we have now not only massively restricted LEAG’s ability to invest, but also intensified the creeping deindustrialization in Germany and endangered the structural development of Lusatia,” warned Kramer. “This energy crisis cannot be solved by redistributing money, only by improving the supply of gas and electricity.”
The EU ministers responsible for energy will negotiate the proposed law on September 30th. Then there should be an agreement. According to the Commission, this requires a majority of at least 15 states, which make up at least 65 of the entire EU population.
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