Germany to cap electricity prices by taxing excess profits

Germany’s government plans to introduce a cap on electricity prices for households and industry to ease the impact of soaring energy costs, a ministry document seen by Reuters on Wednesday showed.

To help finance the cap and pay for the stabilisation of power transmission grids, Berlin is considering skimming off some electricity companies’ profits, the document showed.

The scheme would also be financed by a €200 billion ($196 billion) relief package Chancellor Olaf Scholz’s government announced late last month to help households and companies cope with soaring energy prices in Europe’s largest economy.

The document did not specify how much funds would be drawn from the package and how much from the profits levy.

The cap, which the draft did not quantify, would be based on historical annual electricity consumption. Its design would be similar to a price brake for gas, details of which the government announced earlier this month, the document showed.

But unlike the proposed relief for gas consumers, the draft does not include a one-off payment to cover one month’s electricity bill this year.

As part of the plan, Berlin may skim off 90% of the power profits that electricity companies make above production costs, the paper showed. For spot prices, the levy would apply retroactively from March, and for future prices from December, it said.

Shares in RWE RWEG.DE, Germany’s largest power producer and one of the companies potentially affected, were 1.5% lower following the news.

“We see some increased earnings risk, and, in our view, any retroactive changes in Germany would be both surprising and a clear negative signal to industry investment,” Jefferies analysts wrote, keeping a “buy” rating on RWE.

The document, to be presented to Germany’s cabinet on Nov. 18, said prompt and future power had been affected by runaway wholesale power prices as a lack of gas drove up prices. The overall energy scarcity also stretches to crude oil and coal.

The paper, from Germany’s Economy Ministry, showed that power production from hard coal, gas and biomethane would not be included in the measures, due to their higher production costs.

Italy and Britain have implemented similar levies, while Spain has introduced a temporary one.

Last month, the European Commission set the framework for windfall profit levies on energy firms, but upon Germany’s insistence the Commission left a lot of leeway for the bloc’s members to design their own measures.

In Germany, the levy would factor in companies’ basic costs depending on the type of energy generation.

For example, it would account for around 10 euro cents ($0.098) per kilowatt hour (kWh) for renewable energies, in addition to 3 cents per kWh as a so-called security surcharge, meaning 90% of profits realised above 13 cents would be skimmed off.

Nuclear energy would get 4 cents per kWh, plus the 3 cent security surcharge.