After pushing for greater reliance on Russian gas, the German utility giant Uniper has asked for a bailout amid a growing energy crisis. DW explores whether tax payers should bear the brunt of a bad business model.

The 2008 global financial crisis spurred the debate about whether irresponsible banks were “too big to fail.” Now the same question is being asked of energy companies that built their business model on Russian fossil fuels.

A longtime proponent of importing gas from Russia, on Friday German energy supplier Uniper asked the government for a bailout amid a growing gas supply crisis. Governments across Europe are scrambling to secure energy supplies in time for the winter as Russia’s war in Ukraine continues to disrupt the once substantial flow of oil and gas.

Uniper, Germany’s largest importer of natural gas, says its supply of Russian gas is down 60% from normal levels. Reduced flows are forcing the company and its competitors to fill the gap by purchasing from other sources on the expensive spot market — essentially buying the commodity at its daily value. The price of natural gas is up more than 60% compared to a year ago.

The German government on Friday approved legislation making it easier to provide emergency funding for struggling energy suppliers like Uniper. In June, the government already provided a €10 billion ($10.1 billion) loan to Gazprom Germania, a former subsidiary of Russia’s state-owned gas giant, to secure Germany’s energy supply. More companies are likely to follow.

Bad business

“These are bailouts for companies that had a bad business model,” Tilman Eichstaedt, professor of logistics and supply chain management at the bbw University of Applied Sciences in Berlin, told DW.

He pointed to Uniper’s financial report: released in late February, the day before Russia invaded Ukraine, the company classified the financial risk to its business as “moderate.”

“This means that in the worst case there is only a 1% probability that a loss from this category/subcategory will be higher than an average of €20 to 100 million per year,” the report reads.

As of Friday, politicians were discussing a €9 billion bailout package for the company.

Other major German players released similar reports, Eichstaedt said, even as Russia amassed soldiers on Ukraine’s border, and despite the fact that energy prices had already spiked.

“There were good signs and strong signs for these companies to change plans, and they didn’t do that,” he said.

The next Lehman Brothers?

Cheap Russian energy has been an integral part of the German business model, accounting for about 35% of Germany’s oil imports and around 55% of its gas imports in 2021. Along with industry, Uniper is also a major energy supplier to German households.

“If this minus becomes so big that the companies can’t bear it any more and they fall down, the whole market threatens to fall down at some point — so a Lehman Brothers effect in the energy system,” German Economy Minister Robert Habeck said in June, referring to the US investment bank’s 2008 collapse that rippled through global financial markets.

But US regulators did let Lehman Brothers fail in the end, after determining the business was no longer viable. Could the energy system bear the collapse of critical infrastructure if it meant freedom from business models that threaten the climate and national security?

Letting key players like Uniper fail and triggering a hard transition towards decarbonization might be a way of speeding up the green transition, acknowledged economist Michael Koetter, vice president and head of financial markets at the Halle Institute of Economic Research. Germany currently aims to cut carbon emissions by at least 65% by 2030 compared to 1990 levels. But the political fallout would likely be substantial, he said.

“If we are not able to sustain warmth in apartments and core industry production over the next year, we will lose the political closeness that we have right now, which is necessary to battle back the Russian aggression,” he told DW.