Federal government supports energy-intensive industries as part of an energy cost containment program

Source: Energy & Management Powernews, July 18, 2022

Germany may support energy-intensive companies in view of the war in Ukraine with up to 5 billion euros in state aid. That approved the EU Commission on July 14, 2022.

The energy cost containment program for energy-intensive industries started immediately, the Federal Ministry of Economics and the Federal Ministry of Finance announced on July 15. The program had been announced in early June as the fourth pillar of the federal government's package of measures for businesses. With state subsidies, the federal government wants to prevent insolvencies among companies. "Energy- and trade-intensive companies have been hit particularly hard by the current geopolitical crisis and the resulting rise in energy prices," said EU Competition Commissioner Margrethe Vestager.

The Federal Ministry of Economics and Climate Protection (BMWK) and the Federal Ministry of Finance (BMF) had presented a package of measures for companies particularly affected by the consequences of war on April 8, 2022. Its components are to be implemented in stages. At the end of April and beginning of May, the KfW loan program was already introduced and the federal-state guarantee programs expanded. The margining hedging instrument for energy purchases has also been available since June 17, 2022. The Energy Cost Mitigation Program for Energy-Intensive Industries is now the fourth component.

Application possible until Aug. 31, 2022

Accordingly, eligible energy-intensive and trade-intensive companies can receive a subsidy of up to 50 million euros for their increased natural gas and electricity costs. The aid program has a planned volume of up to 5 billion euros in total. The program is designed to be precisely targeted. It serves to contain the costs of the natural gas and electricity price increases for particularly affected energy-intensive and trade-intensive companies, the ministries said. At the same time, the program is designed in such a way that neither energy consumption is boosted nor price-increasing effects are triggered.

In addition, among the grant requirements, the program provides for a strict bonus waiver rule for management. The program is implemented by the Federal Office of Economics and Export Control (BAFA). Applications can be submitted from 15.7.22, onwards. With this program, the federal government subsidizes a share of the additional natural gas and electricity costs from February to September 2022, insofar as the price has more than doubled compared to the average price in 2021.

The share is calculated in three stages according to how affected the companies are and is basically calculated as follows:

1. 30% of the price difference (subsidy rate) and up to 2 million. Euro receive companies that belong to an energy- and trade-intensive industry to the climate, environmental and energy aid guidelines (KUEBLL) and prove at least 3% energy procurement costs.
2. 50% of the price difference and up to 25 million euros receive companies that meet the previously mentioned requirements and also prove an operating loss in the respective month due to the additional energy costs. According to the TCF (total cash flow approach) specifications, earnings before interest, taxes, depreciation and amortization excluding non-recurring impairment losses (EBITDA) are used to calculate the operating loss. The subsidy may not exceed 80% of the operating loss.
3. 70% of the price difference and up to 50 million euros will receive companies from the 26 sectors listed in Annex 1 of the TCF particularly affected (including chemicals, glass, steel, metals, ceramics), which meet all the previously mentioned requirements.

Further information is available on the BAFA website.

Author: Susanne Harmsen