The electricity price cap was intended to relieve consumers of the energy crisis. It was also financed with surplus revenue from renewable electricity producers. 22 of the providers went to court and the verdict has now been handed down.
When the First Senate of the Federal Constitutional Court announces its verdict today, a lot of money will be at stake for producers of renewable electricity. They had to pay a total of around 200 million euros in so-called excess proceeds – and filed a constitutional complaint against it.
In doing so, they are attacking a mechanism that should be an important instrument in the energy crisis of 2022: the so-called electricity price brake. It should protect consumers from excessive electricity costs and relieve them of the burden. In order to finance this, certain electricity producers were asked to pay. That was the reason for the constitutional complaints.
Electricity from gas power plants drove up prices
Electricity costs rose sharply in 2022 as a result of Russia's attack on Ukraine. As a result of its invasion, Russia initially reduced its gas deliveries to Germany and later stopped them completely. And the price of electricity is usually determined by the expensive electricity from gas power plants.
The electricity price for all electricity, regardless of how it is generated, is determined by the so-called merit order principle. Depending on the electricity demand, different numbers of power plants are switched on. The power plant with the most expensive price that still needs to be added determines the price for everyone. As a rule, these price-setting plants are gas power plants.
Thanks to the merit order principle, renewable electricity was also sold at the high gas electricity price. Because the price of electricity rose overall, consumers also had to dig deeper into their pockets. The federal government wanted to counteract this with the electricity price brake.
Electricity price brake covered consumer costs
The mechanism set a maximum price, a cap so to speak. Consumers only had to pay this price for a large part of their electricity. So you were exonerated. But this created a gap: the energy suppliers' purchasing costs for electricity rose, while they were unable to make enough money through the consumer price cap – they made a loss.
According to the Electricity Price Brake Act, this financial gap was partly closed by producers of renewable electricity. Although they sold their electricity at high prices, they hardly had any additional expenses themselves. They didn't have to rely on expensive gas. The result: Renewable energies suddenly gave some producers considerable additional profits.
The legislature intervened and decided on a partial redistribution with the Electricity Price Brake Act. At the same time, operators of nuclear and lignite power plants, for example, were also affected by this. They earned additional profits back then for the same reason.
Because the skimming of these “random profits” only covered a small part of the financing gap, around 850 million euros, the state also stepped in – with tax money. The federal government has so far paid around 16 billion euros for this.
Court hearing revolved around the electricity market
The Federal Constitutional Court's hearing at the end of September focused primarily on the processes and functioning of the electricity market. The judges had this explained to them over several hours. It was also about how the law came about.
Representatives of the responsible Federal Ministry of Economics outlined the time pressure under which they were working on solutions to the energy crisis in 2022. Remarkable: The judges only dealt with the constitutional questions in passing in the hearing at Schlossplatz in Karlsruhe. There is no need for further discussion on this, said the presiding judge of the First Senate, Court President Stephan Harbarth.
In the run-up to the negotiation, the legal assessment was particularly important for the companies affected. The electricity price brake violates the requirements of the financial constitution and is unconstitutional. The Federal Association of Renewable Energy (BEE), which the Federal Constitutional Court asked for an opinion in the proceedings, criticized the skimming of profits by law. It was not the actual random winnings that were used as the basis for calculation, but rather the company's total sales. “The renewable energy associations had advocated skimming off real profits through a tax instead of fictitious profits,” said BEE managing director Wolfram Axthelm in September.
The companies that filed the complaint do not fundamentally object to the fact that electricity customers were relieved. However, they do not see themselves as responsible. Instead, they demand that this relief be financed through tax revenue. It is a task for society as a whole.
The impact of the ruling depends on the argument
If the Federal Constitutional Court declares the law to be unconstitutional and void, the approximately 200 million euros in excess levy would have to be paid back to the producers of renewable electricity. “That would be a very large administrative effort,” says Christian Ertel, lawyer at the business law firm Taylor Wessing. The resulting financial gap would probably have to be closed by the federal budget.
The ruling could be important not only for producers of renewable electricity, but also for the other power plant operators who were skimmed off, such as nuclear power plants. That depends on the court's reasoning, said lawyer Ertel. After the negotiation, no trend was foreseeable.
The electricity and parallel gas price brakes no longer apply today. They expired in total on December 31, 2023. The federal government agreed on this in its proposal for the 2024 budget. The background is that the prices for electricity and gas currently offered on the market are generally below the price level guaranteed by the energy price brakes. The Constitutional Court wants to announce its verdict at 10 a.m. There should be no subsequent additional costs for consumers.
