Energy-intensive companies complain about the gas price brake

The biggest problem: The aid is made dependent, among other things, on the economic situation of the companies in the year 2023 as a whole. However, in view of the looming recession, entrepreneurs hardly see themselves in a position to make a valid forecast.

This arrangement has already prompted numerous companies to refrain from submitting an application for the time being. “We did not initially include this aid in our planning for 2023,” explains Karl Haeusgen, head of Munich-based Hawe Hydraulics and President of the Association of German Mechanical and Plant Engineering (VDMA).

He observes the same at other companies. And in the chemical industry, according to a survey, only a third of companies consider the price brake in its current form to be helpful.

industrial site at risk

Concern is also great in other sectors: “Germany as a medium-sized industrial location is in danger,” says Max Schumacher, General Manager of the Federal Association of the German Foundry Industry (BDG). The companies are urgently asking for improvements.

In principle, industrial companies can apply for aid if they have an annual gas requirement of more than 1.5 million kilowatt hours. “With up to two million euros in additional costs for the gas, you get a 100 percent reimbursement – ​​with four million euros only half,” explains BDG boss Schumacher.

According to him, the amount that is reimbursed is stagnating. For him, however, it is unclear, for example, whether only part of the costs can be claimed: whether there is a right to vote, says Schumacher, “no one knows”.

For particularly large industrial consumers with additional costs of up to 150 million euros, even more complicated regulations apply – depending on the company’s drop in profits, its classification as an energy-intensive company or the energy and trade intensity of the respective industry.

The fact that the allocation of aid is so complex and time-consuming is also due to the EU aid guidelines. These rules provide for exceptions for particularly energy-intensive sectors and companies. Under certain conditions, you can apply for up to 150 million euros in aid. However, this maximum subsidy is only available if the profit before taxes, depreciation and amortization (Ebitda) for 2023 is 40 percent below that of 2021.

>> Read also: Endgame for German industry – three scenarios for the future

However, since medium-sized companies are difficult to estimate this profit, they expect a nasty surprise: In the end, there is a risk of high repayments of aid, for which they would have to make provisions from ongoing business in the coming difficult months.

Because the sum drawn is immediately subject to repayment and must be valued accordingly in the balance sheet. However, as soon as the help has been applied for, it could not bring the intended planning security – but pose a further risk.

From “double boom” to “backfire”

The Federal Ministry of Economics itself refers to the EU to justify the regulations. “The price brakes for industry are designed as flat-rate as permitted by European state aid law,” the ministry said when asked by the Handelsblatt. The European Commission’s Temporary Crisis Framework (TCF) provides special regulations for the relief of larger companies, which will be relieved by a total of more than two million euros per group of companies.

“It’s like groping in the fog,” reports Roman Diederichs, Managing Director at Dirostahl. “And we are losing competitiveness for the industry as a result. It’s a bureaucracy monster that doesn’t provide any planning security.” That is particularly dramatic, since good competitiveness is also crucial for the energy transition: “Our company supplies parts for the wind power industry and LNG,” says Diederichs.

In contrast to 2021, the entrepreneur expects energy costs to increase fivefold in 2023. “We now have to do our contracts for 2023, and we don’t even know what the application process for these energy prices is.”

Basically, the industry is behind the concept of price brakes for energy procurement. But the resentment about the design can be felt across all energy-intensive industries. “If you want to create an effective instrument that is not just a rescue package, then it has to be simple and unbureaucratic,” says Hawe Hydraulics boss Haeusgen.

According to a survey by the industry association VCI, only a quarter of the companies in the chemical industry see business operations guaranteed by the gas aid in the next few years. 80 percent of the chemical industry consists of small and medium-sized manufacturers. Unlike large corporations like BASF, they are not positioned so globally that they can adequately cushion the energy burden at their home location.

“We fear that the gas and electricity price brakes will simply not reach the companies that need help most urgently,” says VCI President Markus Steilemann, and holds the federal government responsible for this: “It failed to act at EU level for to ensure that the aid is successful, and has even increased the hurdles to do so himself.” The EU framework for state aid must be renegotiated quickly. Otherwise there is a risk of the “double boom becoming a misfire”.

Economists share the criticism

Industry experts support the criticism on many points. “If you implement such an instrument, then it should be designed as simply as possible for those entitled to claim it,” says Oliver Falck, head of the Ifo Center for Industrial Economics.

There were also repayments during the corona pandemic because the slump in sales was ultimately not as high as estimated. But with the gas price brake, the economy needs “more planning security – and fewer speculative elements”.

>> Read also: 2023 will be a fateful year for the German chemical industry

This applies not only to the orientation of the subsidy to the probable profit of a company for 2023. In practice, companies have recently granted their suppliers so-called energy price increases (ETZ) and thus allowed price increases. In many sectors it is expected that the surcharges will no longer be paid, since the suppliers can take advantage of the state subsidies. Price negotiations become even more uncertain.

If a customer continues to pay ETZ to his supplier, he could in turn fall out of the gas price brake criteria. In this case, however, there is still no reliable deregistration procedure, complains Foundry Association boss Schumacher. “Far too many things are left to chance for a medium-sized company to be able to deal with them.” Many companies would not want to expose themselves to this uncertainty and would therefore be left with a large part of the additional costs.

Companies go abroad

This is likely to have consequences for Germany as an industrial location. Foundries report that follow-up orders from customers are no longer granted because the uncertainty in Germany is too high. The companies would also be asked to go abroad with the customers – for example to a country within the EU with lower costs, but also increasingly in the direction of the USA or in the direction of China and India.

Steel and metal processing companies are observing the same thing. “Customers are demanding that the parts no longer be manufactured in Germany, with its immense energy costs, but instead, for example, in an Eastern European plant,” reports Christian Vietmeyer, Managing Director of the WSM industry association.

It is not the first time that medium-sized companies have been disappointed by the federal government’s aid programs: implementation of the energy cost containment program, for which companies have been able to submit applications since July 2022, has been slow.

Customers are demanding that the parts no longer be manufactured in Germany, with its immense energy costs, but instead, for example, in an Eastern European plant. Christian Vietmeyer, Managing Director of the industry association WSM

The subsidy program for the industry was too slow, criticized the economy, with many distressed companies the subsidy had arrived too late or not at all because of the conditions. The long waiting times would have led to bankruptcies.

Jochen Multhauf, managing director of the Düsseldorf consulting firm for medium-sized business financing MSM, also noticed the frustration. His medium-sized energy-intensive industrial customers criticize that the urgent aid is only now being implemented. Other offers of state aid, such as the energy cost containment program, have so far not been effective for all energy-intensive companies – and losses have only been financed with repayable KfW aid loans, but not prevented.

In addition to interest-free loans, which should have been paid out from summer 2022, Multhauf also misses a kind of “reward system” for companies that have created energy savings through sensible investments or changes in production processes without reducing production.

“Here it is particularly small and medium-sized companies that, due to their small company size, have advantages when it comes to savings compared to the relatively inflexible large-scale industry.” But savings mean lower subsidies, explains Multhauf – and are therefore not the focus of financial aid.

More: Who does the electricity and gas price brake help?