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Why households in Germany are facing higher energy bills

Soaring wholesale gas prices and supply issues mean households in Germany are facing higher bills this winter. Here's a look at what's going on.

Why households in Germany are facing higher energy bills
Heating costs will likely soar in Germany. Photo: picture alliance/dpa | Sina Schuldt

What’s happening?

Wholesale prices for natural gas have been soaring for months in Europe. And in many places across Germany, consumers are already feeling it. According to the comparison portal Verivox, 32 regional gas suppliers have announced price increases averaging 12.6 percent for September and October. For the heating of a single-family dwelling, that would lead to additional costs of around €188 a year. 

Nearly half of all households in Germany heat their homes with gas.

Why are gas costs rising?

Gas has become a scarce commodity on the energy markets. In the spring of 2020, after the start of the Covid pandemic, gas prices were low and households saw falling costs. But since last winter, that’s changed. Import prices for natural gas, as determined by the German Federal Office of Economics and Export Control, rose 42 percent from January to July alone.

Prices for natural gas have even more than doubled since the beginning of the year. The energy news portal Montelnews recently even said there was “panic” on the gas market.

Experts believe there a number of reasons for the extreme price increase. After the economy restarted in the aftermath of Covid, world-wide demand for gas normalised again, explains Fabian Huneke of the consulting firm Energy Brainpool.

READ ALSO: Why German electricity bills are hitting record highs 

This is especially true in Asia where growing demand for liquefied natural gas (LNG) is influencing prices on the closely interlinked natural gas market in Europe.

Furthermore, gas storage facilities in Europe have not yet been completely restored after the comparatively cold winter of 2020/21. In Germany, they are currently less than two-thirds full.  A year ago, they were filled to around 94 percent. In most previous years, too, the storage tanks were significantly better supplied before the start of the heating season than they are at present.

The underground storage facilities, which are distributed throughout Germany, compensate for consumption peaks, especially in winter. On cold days, up to 60 percent of gas consumption in Germany is covered by domestic storage facilities, according to the industry association Initiative Erdgasspeicher. Around 23 billion cubic meters of gas can be stored in the reservoirs. That is about a quarter of the amount of natural gas consumed in Germany each year.

Why are Germany’s storage facilities half-empty?

There are multiple plausible reasons why there’s currently less gas than usual in the storage facilities. For one, outages and maintenance work on the gas infrastructure in Europe have meant “that the gas storage facilities could not be filled as much as usual over the summer,” said Eren Çam of the Institute of Energy Economics at the University of Cologne. Another possible reason, according to Essen-based energy company RWE, is the end of natural gas production in the Netherlands.

The current high prices could also play a role, because companies are reluctant to keep too much expensive gas in stock. For instance, “the market’s assumptions about the further development of prices have led to less gas being stored in the supply season so far,” said a spokesman for the Düsseldorf-based energy company Uniper, which has the largest storage capacity in Germany. Their facilities are currently about 88 percent full.

What’s Russia got to do with it?

Here’s where it gets a bit more tricky. Critics have accused Moscow of intentionally limiting gas supplies to Europe in an effort to hasten the launch of the controversial Nord Stream 2, AFP reported last week. 

Nord Stream 2 is expected to double natural gas supplies from Russia to Germany, but it has divided European capitals and raised tensions between the bloc and the US.

On Friday 40 members of the European Parliament called for an investigation of Gazprom, the Russian state-backed gas company.

READ ALSO: Germany set to finish controversial Russian pipeline despite US protest

Oliver Krischer, vice chairman of the Green Party in the Bundestag, said: “The situation with the empty Gazprom storage facilities in Germany and Europe was probably brought about deliberately.” Gazprom, through its subsidiary Astora, operates, among other things, the storage facility in Rehden, Lower Saxony, which, with a volume of 4 billion cubic meters, is one of the largest in Europe.

Most recently (as of September 15th), the data platform for Rehden showed a fill level of less than five percent. Germany is “slipping into a situation with blackmail potential,” warns Krischer, referring to the approval process for the Nord Stream 2 Baltic Sea pipeline.

However, Kremlin spokesman Dmitry Peskov last week dismissed suggestions that Russia has anything to do with the current price spike and storage issues. 

On Friday Gazprom’s press service also issued a statement denying the accusations and arguing that the company delivers gas to its partners at the volumes specified in the contracts.

Defenders of the gas firm also say that Gazprom has met all its long-term supply contracts. 

“All our suppliers and trading partners, including Gazprom, fulfil their delivery obligations,” a spokesman from German energy company RWE stressed.

Is Germany facing a gas shortage in the winter?

Krischer thinks it’s possible. “If it gets really cold in February, important storage facilities are empty and Nord Stream 2 has not been put into operation, regional bottlenecks could occur,” he said.

The Storage Industry Association has also issued a warning. “If the gas storage facilities are not sufficiently filled, gas supply interruptions may occur at times of high demand,” said Managing Director Sebastian Bleschke. At this point, however, there is no risk of a supply shortfall, he said.

When it comes to prices, though, it looks like households will bear the brunt. 

“We expect a major gas price surge this fall,” said Verivox energy expert Thorsten Storck.

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German government announces fresh relief package for high energy costs

With Russia's invasion in Ukraine exacerbating high energy and petrol prices, Germany is set to introduce a second relief package to limit the impact on consumers.

German government announces fresh relief package for high energy costs

The additional package of measures was announced by Economy and Climate Protection Minister Robert Habeck (Greens) on Sunday.

Speaking to DPA, Habeck said the wave of price increases throughout the energy sector were becoming increasingly difficult for households to bear.

“Extremely high heating costs, extremely high electricity prices, and extremely high fuel prices are putting a strain on households, and the lower the income, the more so,” he said. “The German government will therefore launch another relief package.”

The costs of heating and electricity have hit record highs in the past few months due to post-pandemic supply issues. 

This dramatic rise in prices has already prompted the government to introduce a range of measures to ease the burden on households, including abolishing the Renewable Energy Act (EEG) levy earlier than planned, offering grants to low-income households and increasing the commuter allowance. 

READ ALSO: EXPLAINED: What Germany’s relief package against rising prices means for you

But since Russia invaded neighbouring Ukraine on February 24th, the attack has been driving up energy prices further, Habeck explained.

He added that fears of supply shortages and speculation on the market were currently making the situation worse. 

How will the package work?

When defining the new relief measures, the Economics Ministry will use three criteria, Habeck revealed. 

Firstly, the measures must span all areas of the energy market, including heating costs, electricity and mobility. 

Heating is the area where households are under the most pressure. The ministry estimates that the gas bill for an average family in an unrenovated one-family house will rise by about €2,000 this year. 

Secondly, the package should include measures to help save energy, such as reducing car emissions or replacing gas heating systems.

Thirdly, market-based incentives should be used to ensure that people who use less energy also have lower costs. 

“The government will now put together the entire package quickly and constructively in a working process,” said Habeck.

Fuel subsidy

The three-point plan outlined by the Green Party politician are not the only relief proposals being considered by the government.

According to reports in German daily Bild, Finance Minister Christian Lindner (FPD) is allegedly considering introducing a state fuel subsidy for car drivers.

The amount of the subsidy – which hasn’t yet been defined – would be deducted from a driver’s bill when paying at the petrol station. 

The operator of the petrol station would then have to submit the receipts to the tax authorities later in order to claim the money back. 

Since the start of the war in Ukraine, fuel prices have risen dramatically in Germany: diesel has gone up by around 66 cents per litre, while a litre of E10 has gone up by around 45 cents.

READ ALSO: EXPLAINED: The everyday products getting more expensive in Germany

As well as support for consumers, the government is currently working on a credit assistance programme to assist German companies that have been hit hard by the EU sanctions against Russia.

As reported by Bild on Saturday, bridging aid is also being discussed for companies that can no longer manage the sharp rise in raw material prices.

In addition, an extension of the shorter working hours (Kurzarbeit) scheme beyond June 30th is allegedly being examined, as well as a further increase in the commuter allowance.