Stabilising the gas market

Gas surcharge as of 1 October 2022 Stabilising the gas market

Reduced gas supplies from Russia mean that importers are having to procure replacements at a considerable cost – a special surcharge is helping them to cope. But in order to cushion the burden on domestic households and businesses from increased gas prices, the VAT on gas will be reduced from 19 percent to 7 percent. 

The photo shows a gas cooker

It is not yet possible to specify exactly how much gas consumers will have to pay for the general surcharge, as it will depend on how many financial compensation claims are made and how high they are. 

Photo: picture alliance/dpa

Under the current circumstances, gas importers need to be subsidised to compensate for high gas procurement costs. Failure to do so would risk the collapse of companies that are key to the functioning of the gas market and supply security, which is why the Federal Government has introduced a gas surcharge that will apply from 1 October 2022.

Trading Hub Europe, as the organisation responsible for the market region, announced on 15 August that the surcharge will initially start at 2.4 cents per kilowatt hour. All gas consumers will be subject to the surcharge, which will end on 1 April 2024. The surcharge will be invoiced up to 30 September 2024: it will be charged on a monthly basis and is subject to adjustment every three months.

The Energy Security Act makes provision for this net price adjustment by allowing the additional costs incurred through the procurement of alternative gas supplies to be distributed among consumers by means of a surcharge. The Federal Government passed the relevant Gas Price Adjustment Ordinance on 4 August, and it came into force on 9 August.

Value-added tax on gas to be reduced

In view of the gas price increases, the Federal Government wishes to provide value-added tax relief for citizens and will therefore be reducing the VAT on gas consumption from 19 percent to seven per cent for a limited period ending on 31 March 2024.  

“By taking this step, we are providing relief to gas consumers to a far greater extent than the additional burden caused by the surcharge,” said Federal Chancellor Olaf Scholz, who went on to point out that he expects companies to fully pass on this tax reduction to consumers, and that this would be communicated clearly.

Third relief package underway

The surcharge will impose a considerable financial burden, with individual households potentially facing additional costs of several hundred euros per year.  “Fairness is key when it comes to keeping our country united in this crisis,” Federal Chancellor Scholz stressed. He said that reducing value-added tax on gas consumption was another way of providing relief, and went on to explain that the Federal Government would not abandon anyone in this time of crisis, with a third relief package to be put together over the next few weeks. Discussions about the exact form of this package were currently taking place in confidence, he said.

Fair distribution of the burden

The approved gas surcharge will facilitate a fair distribution of the burden across many shoulders including businesses and private consumers. Gas importers are also making their own contribution: as of 1 October 2022, they will only be able to register 90 percent of their replacement procurement costs due to cancelled Russian gas supplies for the surcharge, while they will have to bear 100 percent of their losses from replacement purchases prior to 1 October 2022 themselves.

Stabilising the gas market

The Federal Government is well aware that a gas surcharge is an additional financial burden. However, this measure is necessary to secure the long-term gas supply. It is vital that gas importers continue to remain flexible so as to prevent any worsening of the already tense gas market situation, which could result in further massive price hikes and serious impacts on the German economy as a whole. So all gas consumers have a vested interest in preventing the loss of important gas importers.

As Federal Minister for Economic Affairs Robert Habeck explained: "The surcharge is a consequence of Putin's war of aggression against Ukraine, which is in violation of international law, and the artificial energy shortage caused by Russia. It is far from being an easy step to take but is necessary to secure the heat and energy supply both for domestic consumption and for the economy. Not doing so would jeopardise the security of supply."

Reduction of gas imports by Russia
Under the Energy Security Act, a net price adjustment is permissible if a significant reduction in gas import volumes to Germany is imminent or has been determined by the Federal Network Agency. Ever since Russia began its war of aggression against Ukraine in violation of international law, there have been repeated reductions in gas import volumes. The supply was cut to 20 percent as of 27 July 2022. Russia is using natural gas as a means of exerting political pressure. The capricious behaviour of the Russian Federation means there is a high risk of supplies being cut even further.