Energy crisis looms large over Germany’s local utilities

(EurActiv, 6 Sep 2022) The 1,000 municipal utilities that are the last link in the German energy supply chain are feeling the pinch of record-high energy prices, raising fears that some of them might go bankrupt.

While large energy companies like Uniper and E.ON receive plenty of attention from German politicians, municipal utilities – local suppliers of gas, water and electricity – are essential links in the energy supply chain.

And they are increasingly worried about rising prices on electricity and gas markets.

“The municipal utilities look with great concern at the drastically rising energy procurement prices,” said a spokesperson for German Association of Local Public Utilities (VKU).

Utilities find themselves “in a sandwich position: they are dependent on their suppliers and at the same time have delivery obligations to their customers,” the spokesperson told EURACTIV.

When energy prices rise, the up-front costs of energy trading increase, the spokesperson explained. 

Utilities trade energy ahead of time to ensure they reach a given price, a process that requires a “minimum margin” to safeguard against default. A “margin call” occurs if the funds in the account fall below the minimum margin requirement for a trade, forcing the company to secure it with more cash. When energy prices go up, the cash collateral required also goes up.

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EurActiv, 6 Sep 2022: Energy crisis looms large over Germany’s local utilities