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ENERGY

Will German energy bills really come down in price soon?

As part of its energy relief measures, the German government is planning to end the Renewable Energy Act (EEG) levy from July. But will getting rid of the eco-friendly tax really have an impact on prices?

a man looks at his energy bill
A man looks at his energy bill while talking on the phone. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

The government has been throwing out energy relief measures left, right and centre in recent months. With costs soaring for consumers, the coalition of the SPD, Greens and FDP has been desperately seeking ways to limit the impact. 

Alongside pricey moves like a €300 energy allowance for taxpayers and a cut-price transport ticket for just €9 a month, the government is planning to end the Renewable Energy Act (EEG) levy on energy. 

The traffic-light coalition argues that this will help drive down people’s electricity and gas bills, providing much-needed relief from the current high prices. But is the tax cut just a drop in the ocean for people struggling to pay their bills?

Energy experts and consumer rights advocates believe it may be. Here’s what you need to know.

What is the Renewable Energy Act (EEG) levy?

The EEG levy is a green tax that has been used to fund investment in solar and wind power as part of the energy transition.

Until January 1st, 2022, it added 6.5 cents per kilowatt hour to people’s energy bills, but at the start of the year it was cut to 3.72 cents per kilowatt hour.

The aim was originally to phase out the EEG levy by the end of the year, but with the war in Ukraine sparking further price hikes, the government decided to bring this forward by six months.

The coalition now plans to slash the EEG levy to zero on July 1st and dig into its own coffers to help to fund renewable energies. This will be done via the Energy and Climate Fund and will cost the treasury around €6.6 billion in the second half of 2022. 

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

Will the tax cut lead to a reduction in energy prices?

Under normal circumstances, the reduction of the EEG levy would lower the price of electricity if the entire tax cut were passed onto consumers, said energy expert Claudia Kemfert of the German Institute for Economic Research.

In this situation, a household of four using an average amount of energy could save up to €300 a year.

“However, electricity prices on the stock exchange have increased due to rising coal, gas and CO2 prices, so fossil fuels are making electricity expensive,” Kemfert explained.

READ ALSO: The key dates to know for Germany’s energy relief payouts

Though the EEG levy makes up a fair proportion of people’s bills, it’s just one component of energy costs – along with other taxes, grid fees and production costs. Above all, the cost of procuring fossil fuels has gone through the roof, and it’s largely these supply costs that are having an impact on prices.

The prices that electricity suppliers have to pay for the purchase of electricity have risen to unprecedented levels in recent weeks and continue to rise, said Kerstin Andreae, head of the German Association of Energy and Water Industries (BDEW).

“This will also have an impact on energy costs for household customers,” she explained. “The abolition of the EEG levy alone cannot cushion this.”

Are energy companies likely to profit from the tax cut?

This is another controversial issue. After the EEG levy was first reduced on January 1st, 2022, surveys of price comparison sites suggested that the tax cut wasn’t being passed on to consumers.

According to price comparison portal Verifox, electricity prices rose by 3.5 percent between December 2021 and January 2022, with households paying a record-breaking 35.15 cents per kilowatt hour of electricity. 

This is in spite of the cut in the EEG levy, which could have led to a three-percent reduction in cost for consumers.

“The electricity suppliers are not passing on the lower EEG levy to their customers because the purchase prices on the electricity exchange have multiplied,” said Verifox energy expert Thorsten Storck. “In addition, the fees for the electricity grids have risen by an average of four percent nationwide.” 

Check24 offices in Munich

Employees work at the Munich office of price comparison site Check24. Analyses of electricity prices in January suggest the first EEG cut was not passed on to consumers. Photo: picture alliance / dpa | Matthias Balk

Economics expert Claudia Kemfert believes that electricity companies are likely to do a similar thing this time around, which would mean that prices will still rise – but that the hikes will be slightly less pronounced. 

“It is unlikely that the EEG surcharge will lead to falling electricity prices at present, because due to the war situation the prices for fossil energy sources are exploding and with them the price of electricity,” she said.

Storck agrees. “The abolition of the EEG levy only dampens the sharp rise in electricity prices this year,” he said.

READ ALSO: Who benefits the most – and least – from Germany’s energy relief measures?

What can the government do to reduce prices more?

So far, it appears there are plans to try and force companies to pass on savings from the tax cut to consumers from July 1st.

In a draft law on the relief measures, the coalition stipulates that the cut in the EEG levy shouldn’t be used to increase a supplier’s margins, i.e. the difference between their prices and costs, and it shouldn’t be directly used to offset costs.

However, the calculations for this could get a little messy, experts believe.

In the current situation, there are differing opinions on how to genuinely reduce the cost of energy for households.

Extinction Rebellion

Activists from Extinction Rebellion call for an end to fossil fuels. Photo: picture alliance/dpa | Sven Hoppe

Many experts, including Kemfert, say that this can only be done with a rapid expansion of renewable energy rather than a continued reliance on fossil fuels.

Lobbyists from the German Taxpayers’ Association, meanwhile, believe further tax cuts are the answer.

“The fact that the EEG levy will soon no longer have to be paid is initially good news for electricity customers: in the second half of this year alone, a family of four will save around €90 euros on their electricity bill,” said Reiner Holznagel, President of the German Taxpayers’ Association.

“However, it is also true that the bottom line for citizens and businesses is no real relief, because the costs for the promotion of renewable energies still have to be paid. A real relief for taxpayers, on the other hand, would be a reduction in the electricity tax – without taking on new debt for the loss of tax revenue.”

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MONEY

Why German bank customers could soon pay less for their account

A major German bank is set to scrap fees on large balances - and a number of others look set to follow. Here's why people in Germany may be paying less for their savings or current account in the near future.

Why German bank customers could soon pay less for their account

What’s going on? 

Interest rates have been at rock-bottom levels for years, making it much harder for people to get returns on their savings.

In recent years, many banks have even been levying what’s known as negative interest rates on customers. If interest normally incentivises people to save by helping them to grow their money, negative interest basically does the opposite.

If you have a certain amount of money in the bank, your bank will charge you negative interest via a deposit holding fee, which will usually be a certain percentage of your balance.

With N26, for example, balances of over €50,000 are subject to a 0.5 percent fee each year. For a balance of exactly €50,000, that equates to €250 in bank charges just for keeping your money there. 

Some banks even charge a deposit holding fee for balances as low as €5,000 or €10,000 in a current account. 

On Tuesday, ING Deutschland became the first bank to announce that it would be scrapping negative interest rates for the vast majority of its customers.

From July 1st, new customers of ING will be able to deposit up to €500,000 in their account without being charged for it, while existing customers will automatically have the fee-free amount raised to €500,000 from the current €50,000. 

Now, it seems a number of other German banks are planning similar moves. 

Why is ING Deutschland ending the holding fee?

Not entirely out of the goodness of its own heart – though that doesn’t stop it being good news for customers.

The European Central Bank (ECB) is set to make a decision on interest rates in the bloc this July, and most people expect that the bank is poised to increase interest rates from minus 0.5 percent to zero. 

Since banks have basically been passing on the ECB’s fees to their own customers, a hike in the ECB’s interest rate would spell the end of most negative interest-rate accounts in any case. But ING Deutschland said it wanted to pass on the positive interest rate trend to its customers even earlier.

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

“With the increase in the fee-free allowance for credit balances on the current and extra accounts, the deposit fee is no longer applicable for 99.9 percent of our customers,” said Nick Jue, chief executive officer of ING in Germany. “We were one of the last banks to introduce a deposit holding fee and one of the first to virtually abolish it.”

He added that the bank had already kept its promise to abolish the holding fee for almost all customers before the European Central Bank made its decision.

Does this have anything to do with that court decision on bank charges?

That’s definitely a factor. According to a decision in Germany’s Federal Supreme Court last year, credit institutions have to obtain the consent of their customers when making changes to their fees and conditions.

That means that financial institutions have to ask for consent to current fees retrospectively if they don’t want hoards of people trying to claim their money back.

If a customer doesn’t consent to the fees, the bank will usually close that customer’s account.

Man signs a contract

A man in a suit fills in an official form. Photo: picture alliance/dpa/Pixabay | hnw-Gruppe

According to ING Deutschland, the scrapping of negative interest rates on balances up to €500,000 may help to sway those customers who have not yet agreed to the latest terms and conditions – including the deposit holding fee.

Anyone who agrees to the Ts&Cs will automatically be given the higher allowance as of July 1st.

“ING Deutschland expects that the increase in the allowances will convince in particular those customers who have not yet agreed to the General Terms and Conditions including the holding fee, and that the bank will thus terminate fewer customers than last planned,” ING said in a press release. 

READ ALSO:

What other banks are planning to do this?

According to reports in Bild and Bialo, the other banks planning on ending negative interest rates (or raising the threshold for fee-free balances like ING Deutschland has done) include:

  • Deutsche Bank
  • Commerzbank
  • Deutsche Apotheker- und Ärztebank (Apobank)
  • Dortmunder Volksbank
  • Hamburger Sparkasse (Haspa
  • Frankfurter Sparkasse
  • Frankfurter Volksbank
  • Mittelbrandenburgische Sparkasse
  • Nassauische Sparkasse (Naspa)
  • Ostsächsische Sparkasse Dresden
  • Sparda-Bank München
  • Sparda-Bank Südwest
  • Sparda-Bank West
  • Sparkasse Hannover
  • Sparkasse Pforzheim Calw
  • Volksbank Stuttgart

What does this mean for my savings?

There’s good news and bad news.

The good news is that, from July, you’ll no longer have to pay exorbitant charges just to store your money in a safe place – and you won’t be penalised for saving more. The bad news, on the other hand, is that low interest rates aren’t going away anytime soon.

So while you won’t be losing money hand over fist, you won’t be earning much of a return on your savings either.

Banks in Frankfurt

Skyscrapers in the financial district of Frankfurt am Main. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

“If the interest rate environment continues to develop positively, we will also let our customers participate in this development,” said ING Deutschland’s Nick Jue. “However, the low-interest phase will continue for the time being and broadly diversified investments will remain important.”

Getting a securities account where your money is invested is one way to try and grow your savings, as is investing in property.

Of course, people with mortgages and other loans benefit from the low interest rates – which could be why the German property market is currently booming. 

READ ALSO: Five ways Germany’s soaring inflation could affect your life

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