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ENERGY

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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ENERGY

German households to receive relief for gas costs ‘starting in January’

To help German residents with skyrocketing energy costs, the government is planning to provide relief starting in January, according to draft legislation.

German households to receive relief for gas costs 'starting in January'

Through the gas price cap, the so-called Gaspreisbremse, both German residents and companies will receive retrospective relief for their gas costs starting in January 2023, according to the draft. 

Previously the relief payments were set to stretch between March 2023 and spring 2024, with 25,000 larger businesses, as well as almost 2,000 hospitals and schools to receive the help starting in January. 

READ ALSO: How much could households save under Germany’s new price cap?

The German government is reacting to the sharp rise in energy prices with energy price brakes worth billions and wants to soften the blow on both private households and companies. 

Germany will also be divvying out a one-off energy relief payment in December.

READ ALSO: When will people in Germany get their December gas bill payment?

How much will households and businesses receive?

Under the gas price cap, households and small and medium-sized enterprises are to receive a guaranteed gas gross price of 12 cents per kilowatt hour for 80 percent of their current consumption. For the remaining 20 percent of consumption, the contract price is set to apply.

For district heating, the guaranteed gross price is to be capped at 9.5 cents. 

Starting in January, a gas price brake is also planned for industry. These large consumers are to receive a guaranteed price of 7 cents per kilowatt hour net for 70 percent of their previous consumption volume.

The largest part of the energy price brake is to be financed by a “defence umbrella”, or special reserve, totalling up to €200 billion. The government is still taking on new debt in order to finance the energy caps. 

Russia’s war against Ukraine has increasingly aggravated the situation on the energy markets in Germany and Europe in the course of 2022, the draft states. 

In particular, the recent large price increases for natural gas and heat represent a “considerable, in some cases existence-threatening burden for residents and companies in Germany,” it continued. “They are an enormous socio-political and economic challenge.”

Vocabulary

relief – (die) Entlastung

Natural gas – (das) Erdgas

Consumption – (der) Verbrauch

cushion/soften a blow – abfedern

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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