Fabricators question German gas-based power pricing system

Germany’s fabricators of steel and metal products are urgently calling for an amendment of the prevailing electricity pricing system, and for an upper cap on electricity prices, Kallanish notes.

Under the so-called “Order-Merit-Principle”, power prices are defined by the price of natural gas, which has undergone an enormous surge and will likely increase further in view of Russian gas supply cuts.

Most German electricity is generated by coal and renewables, at much lower costs than natural gas. Still, gas power plants remain a part of the national energy mix, and the principle states that the highest price on the market can be charged by all suppliers.

This is an outdated pricing model, which creates enormous windfall profits for non-gas power plants – and the price must be paid by consumers, says steel and metal fabricators association WSM.

The association has issued a statement on the matter on the eve of negotiations over existing supply contracts. According to WSM, the highest price from gas power plants in 2021 was €226 ($229) per megawatt hour, compared with €145 as the highest price of other energies.

WSM notes the European Commission favours an upper cap on prices, but the German government has not yet moved to implement this proposal. “It is in the hands of the government to decouple the power price from the gas price. What is it waiting for?” the association wonders. It calls on the government to make a move before the extension of the supply contracts is due.

Christian Koehl Germany