Allowing you to pass on rising energy to customers is difficult, but would have a long-term benefit
The German government faces a dilemma it hoped to avoid. Energy company Uniper is seeking financial help after Russia cut its gas supply by 40% two weeks ago. Berlin must allow it to pass on price increases to customers, or bail it out. The former, while politically difficult, would at least have a long-term benefit.
Uniper has been forced to source gas on the spot market, at prices significantly higher than those under long-term contracts with Gazprom. This costs him about 20 million a day, estimates JP Morgan. A liquidity line of 2,000 million from the state bank KfW should help him survive three months. More lasting solutions will have to be found. Under the “alert level 2” that the Government activated last week to deal with the gas emergency, companies could pass on the higher costs to customers. But Berlin said it would be decided on a case-by-case basis by the regulator.
Germany could be tempted to bail out Uniper. That would avoid the difficult decision of hitting consumers. And Uniper’s majority shareholder, Fortum, could be cajoled into contributing some. But it would be better to allow Uniper to raise its prices, while the government focuses on cushioning the blow for poorer households and businesses with targeted aid or tax cuts. Allowing prices to rise would help limit demand. This would be in line with one of the key objectives of energy policies throughout Europe.
The problem is that Russia is playing on the nerves of the EU, explaining the outages, for example, by the need for maintenance or the lack of crucial parts for its Nord Stream 2 gas pipeline. It could well resume deliveries at their normal level in days. .
But it could also cut off supply entirely, driving up prices even higher. And the bill might not end up with Uniper, as other local dealers might need help. By forcing Germany to make a tough decision, the Uniper situation could at least help push Berlin toward a better gas policy.
