Raue expert opinion: Electricity price brake violates EU requirements and the German Constitution

Berlin, November 24, 2022 -An expert opinion prepared by Raue for Hamburg-based energy supplier LichtBlick concludes that the electricity price brake sought by the German government violates the underlying EU law and the fundamental right to property guarantee in the German constitution, as well as constituting a special levy inadmissible under the financial constitution of the German Basic Law. In addition, the amendment also counteracts the intention to expand renewable energies.

The mechanism for skimming off revenues planned by the electricity price brake leads to profound distortions on the German electricity market. This is expected not only to increase prices, but also to block the further expansion of renewable energies and, in individual cases, to render plant operators insolvent.

The draft for an Electricity Price Braking Act drawn up by the Federal Ministry of Economics is intended to transpose the European Emergency Regulation into national law. However, instead of the cap of EUR 180/MWh provided for in the Emergency Regulation, the German government wants to skim producers depending on the technology used and, in the case of RE plants, down to the value to be applied. Moreover, for new contracts, it is not the actual revenues that matter, but fictitious revenues on the short-term market. The skimming of “fictitious revenues”, however, does not correspond to the EU requirement, which only allows the skimming of “realized revenues”. The Council eliberately included this restriction in the regulation in order not to jeopardize power purchase agreements (PPAs). With its law, the German government is undermining this requirement and thus accepting a collapse of the PPA market. In order to avoid the risk of insolvency, generators will in future dispense with PPAs and forward marketing and instead market their plants only on the spot market. This in turn makes it more difficult for municipal utilities and other suppliers to conclude long-term contracts at calculable prices. Both end consumers and industry suffer from the resulting supply shortage.

The skimming of non-existent revenues also violates the property guarantee under Article 14 of the German Constitution, because according to the case law of the Federal Constitutional Court, state levies may not have a confiscatory effect. Moreover, the levy is an impermissible special levy. According to the financial constitution of the German Constitution, special levies may be imposed on a group of companies instead of general taxes only under very narrowly defined conditions. These conditions are not met in this case; in particular, the levy lacks the group-benefit character required by the Federal Constitutional Court.

LichtBlick’s press release and a brief summary of selected aspects of the expert opinion can be found here.

(24.November 2022)