Gas price cap and market design changes

This month I was incredibly annoyed by German politics. I am shocked by the way the so-called “gas” levy has become the subject of disputes behind which lie purely political motives. One gets the impression that it is more about a power struggle within the coalition than solutions to stabilise the energy industry. Whether the design of the gas levy was good is debatable. But in the current situation, I would expect the coalition partners to tolerate mistakes and look for better solutions in unison. When gas and electricity prices threaten the existence of many citizens and businesses, there is no room for political games. In this edition, you will of course find out more about how the discussions about the gas levy have developed and what prospects the levy has in the long run.

The outlook also depends on what consequences under financial constitutional law are to be drawn from the planned nationalisation of Uniper. The decision to do so is another topic in this issue. As SEFE could also be nationalised and VNG is in public hands anyway, I couldn't hold back on some reflections on the opportunities and risks of a state-run 'VEB Gasimport' (The 'Volkseigener Betrieb' - publicly owned enterprise - was the main legal form of industrial enterprise in cold war East Germany). Given the turbulence in the trading markets and the need to reorganise natural gas procurement, it seems to me that the new state-owned companies (for the time being, they are not yet owned by the state) certainly offer opportunities. These turbulences and particularly the enormously accelerated discussions on price caps (led in particular by the EU Commission) are the topic of the month.

What is the positive news? The significant progress in the development of LNG terminals is certainly positive, though some market participants also see some clouds on the horizon, which I also talk about in this issue. Above all, the Deutsche ReGas concept, which I viewed rather sceptically, is making considerable progress. Whether it is positive or not is for you to judge. Lichtblick founder Heiko von Tschischwitz has gone among the authors. 'Die Welt kippt' (the world is at a tipping point) is still waiting on my bookshelf to read. Someone who has read it said it was a remarkable debut, albeit no Dan Brown. Please first read this edition, from which you will hopefully gain new insights, and then the book.

Dr. Heiko Lohmann
Freelancer

E-Mail +49 30 8824005

TOPIC OF THE MONTH: Gas price cap and market design changes

In the last issue's rumour section, I wrote about discussions on possible gas price caps. In the meantime, a potential cap on gas prices and the possibility of interventions in the market design have arrived with full force in the general energy discussion. I think there are three main factors that have led to a considerable intensification of this discussion:

- The "gas crisis" has increasingly become an "electricity price crisis" due to, among other things, the merit order effect in the electricity spot market. The bid price of the last power plant used determines the price in the spot auctions. In the summer, this was quite often a gas-fired power plant. As a result, prices increased as did the producer surplus for so-called inframarginal suppliers in the electricity market.

- The EU Commission has put the issue on its agenda and wants to implement regulations.

- Prices are so high that they threaten the existence of many households and industrial enterprises. The belief that this can be solved through direct support measures alone is limited. For many market participants, interventions in price formation and market mechanisms are a horror vision simply because of the unintended side effects.

By the way, I already wrote about this topic once in the Topic of the Month in the April issue. In the meantime, however, the situation has worsened.