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Price falls, red tape curb demand from businesses for German energy subsidy

February 11, 2023 00:00:00

BERLIN, Feb 10 (Reuters): Take-up by German companies of a government scheme to help with energy costs this winter is likely to be lower than projected due to falling spot prices for gas and electricity and what some business owners say is a daunting application process.

The government had earmarked 83 billion euros ($89 billion)for the energy price caps this year, part of a 200 billion euro relief package approved last year to help companies and households shoulder soaring fuel bills.

But Christian Otto, head of the VEA industrial energy consumers group, estimates that only 20% of its 4,500 members will make use of the emergency brake because spot prices have already fallen below the levels at which it kicks in.

"These are firms that signed high-price contracts last year and will need the government's cap to pay the difference," Otto told Reuters.

A ban on dividend payments by recipients of the subsidy might deter applications from blue-chip companies whose heft may also help them lock in favourable energy costs.

But even some of the small- and medium-sized businesses that form Germany's "Mittelstand" economic backbone told Reuters their energy costs were currently below the 70 euros per megawatt hour cap set for industrial consumers.

"The gas price seems to be so low at the moment, and as things look maybe we won't need the gas cap at all this year," said Stefan Weber, who runs casting firm ACO Guss, citing a spot market price of 65 euros for one megawatt hour of gas.

Wolfgang Mannheim, managing director of clay manufacturer KTS said he would watch to see how prices develop before deciding whether to apply. KTS secured 60% of its gas needs at a good price last year, he added, and will buy the remaining 40% on the spot market.

The economy ministry said it was difficult to determine how many companies would benefit from the cap as applications are still open, and often made by energy suppliers, sometimes on behalf of multiple companies.

The relief package runs until April 2024, meaning money not spent this year could be used to help companies and households cope with potential energy price spikes next winter.

Utility industry association BDEW said gas wholesale prices are showing signs of a lasting easing. "However, prices are still around four times higher than the long-term average before the first rise in energy prices in 2021," BDEW said.

Tobias Linser, managing director of automotive parts supplier Boegra, told Reuters the way the cap is constructed meant some companies were "falling through the cracks".

The scheme offers relief worth up to 70% of a company's basic consumption in 2021, with remaining bills to paid at market prices. But because Boegra ran at reduced capacity in 2021 due to COVID-19 restrictions, with a short-time work scheme to cut costs, the 70% benchmark is too low to help much.

Envisaging a 30% jump in its energy bills this year, Boegra laid off 10 of its 125 workers last year and expects to let another seven go in 2023, even though the prices it is now paying for energy are below the level of the cap.

"On the one hand we are not big enough and on the other hand we are not small enough," Linser said, adding that the company was passing on higher energy costs to customers where possible.

Some companies were being put off applying by the process, even if it could lower their costs, industry associations and business owners said.

"It is very bureaucratic, and bureaucracy scares companies," Hans-Juergen Voelz, chief economist of the German Association of Small and Medium Businesses, told Reuters.

Where energy consumers are eligible for a subsidy of less than 150,000 euros a month, it is applied for by their energy supplier and passed on automatically, an economy ministry spokesperson said.

Companies entitled to more than that have to notify their suppliers and then claim the relief themselves.

"I have to estimate everything," said Weber at ACO Guss.

He said the company had to give estimates of its annual power consumption and profits in an application due by March 31, adding: "I don't know how much electricity will cost this year. I don't know how my EBITDA will develop."

The VEA's Otto cited other conditions, such as providing details of how the funds would be used, a ban on paying bonuses to managers and keeping jobs in Germany.

"The energy price brake is a bureaucratic disaster," said Dirk Howe, managing director of Siempelkamp, a medium-sized foundry. "Improvements should be made urgently."

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