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ENERGY

German government ‘set to ditch controversial gas levy’

The gas levy - which would have cost the average family in Germany another €500 a year - likely won’t come into force after all, according to German media reports.

A woman holds euro bills next to a gas flame on a kitchen stove in Frankfurt (Oder).
A woman holds euro bills next to a gas flame on a kitchen stove in Frankfurt (Oder). Photo: picture alliance / dpa | Patrick Pleul

According to reports in the Frankfurter Allgemeine Zeitung (FAZ), Germany’s controversial Gasumlage – or gas levy – will get axed either Tuesday or Wednesday, with a Gaspreisdeckel, or a cap on the price of gas, set to replace it.

Energy and Economics Minister Robert Habeck of the Greens insisted once again just last week that the levy would go ahead.

It would see an additional 2.4 cents per kilowatt hour passed on to consumers, in order to stabilise Germany’s energy providers, which are also struggling with higher costs after Russia cut off cheap supplies.

German and Danish investigators are now investigating whether the Nord Stream II pipeline, which Berlin axed in February in the days leading up to Russia’s invasion of Ukraine, was deliberately sabotaged Monday, as it leaks gas into the sea.

With electricity prices having doubled and gas prices nearly quintupling, several politicians – also with the government’s own traffic light coalition – have called for the levy to be scrapped.

Lars Klingbeil, co-leader for Chancellor Olaf Scholz’s Social Democrats, told public broadcaster ZDF that the gas levy was on “politically shaky ground”.

“It must be clear that we have the strength to discuss this openly and correct ourselves if necessary,” he said.

“The gas levy makes gas prices more expensive, which raises the question of whether it makes sense economically,” said Finance Minister Christian Lindner, who leads the liberal Free Democrats (FDP).

FAZ reports that negotiations between the three governing parties and relevant energy companies were nearing an end Tuesday, with the Cabinet expected to make a final decision Wednesday morning.

A gas price cap is likely to replace plans for a gas levy, which would see a limit on what consumers would pay their energy companies for gas, leaving the federal government to pick up the bill for the difference when market prices go above the designated cap.

READ ALSO: EXPLAINED: Will Germany set a gas price cap and how would it work?

With the gas price cap already having the support of many Social Democrats and Greens, Lindner’s FDP is set to agree to it provided a few conditions are met.

“As the FDP, we can foresee a gas price brake coming into force,” Christian Dürr, who leads the FDP in the Bundestag, told Deutschlandfunk. “Now, frankly, I expect the Greens to move on the issue of extending the life of nuclear power plants and restarting coal-fired power plants.”

It’s not yet clear though how the government would pay for the cap. The FDP has been resistant to suspending Germany’s constitutionally enshrined debt brake, which limits what they can borrow.

The SPD and the Greens want to suspend it to pay for a gas price cap, which could cost the government between €30 and €50 billion according to one estimate.

The debt brake can be suspended in emergency situations, such as in March 2020, when the German government put it on ice to pay for the first Covid-19 rescue package.

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ENERGY

How electricity prices are rising across Germany

As the year draws to an end, price comparison portals have observed huge spikes in electricity costs across Germany - though the scale of the price hikes vary across different regions.

How electricity prices are rising across Germany

According to analysis carried out by comparison portal Check24, there were at least 580 cases of price increases in the basic electricity supply at the beginning of the year, with around 7.3 million households affected.

Electricity costs increased by an average of 60 percent, the analysis found, though in some cases were much higher. In the case of the Cologne-based supplier Rheinenergie, a kilowatt hour of electricity has gone up to 55 cents – 130 percent higher than the previous price. 

Comparison portal Verifox, which conducted its own analysis, found that prices were rising by an average of 54 percent across the board. 

“The new year is beginning with a massive wave of price increases for electricity,” said Verifox energy expert Thorsten Storck.

Analysts also noted strong regional differences in the scale of the price increases, with Munich and Cologne topping the list for the most expensive electricity. 

In Munich, a kilowatt hour of energy will cost 61.9 cents from January, compared to 55 cents in Cologne.

Meanwhile, MVV Energie in Mannheim, Baden-Württemberg, will charge almost 45 cents per kWh for its basic supply from January onwards – instead of the previous 27 cents. The East German energy supplier EnviaM, based in Chemnitz, will charge 48.1 cents in the future – 20.1 cents more than before.

In Potsdam in Brandenburg, the region supplier is raising its electricity prices by around 21 percent to 46.5 cents per kilowatt hour.

READ ALSO: ‘It’s going to be a bleak winter’: How people in Germany are coping with the energy crisis

Why are the prices so high? 

In a statement explaining the imminent jump in prices, Rheinenergie pointed to the huge increase in their procurement costs and other overheads.

“Compared to the previous year, prices on the electricity exchanges have risen by more than 300 percent,” they explained. “At their peak they had increased more than tenfold. In addition, the grid fees are also rising.” 

The extreme spike on the markets is yet another consequence of Russia’s invasion of Ukraine, which has sent the price of natural gas soaring.

An electricity pylon near a motorway in Lower Saxony.

An electricity pylon near a motorway in Lower Saxony. Photo: picture alliance/dpa | Moritz Frankenberg

Though gas isn’t the only component involved in producing electricity – much cheaper renewables also account for a decent portion of Germany’s supply – it does have a significant impact on prices. That’s because of something known the “merit order,” in which the most expensive gas-fired plant used to produce electricity is decisive in setting the cost.  

READ ALSO: Germany’s Scholz dims lights on Christmas tree amid energy squeeze

What can customers do?

How to handle the latest wave of price increases may in part depend on who your current supplier is.

According to Udo Sieverding, an energy expert at the North Rhine-Westphalia consumer advice centre, people using a private supplier should consider whether it would make more sense to fall back on the so-called “basic supply.” 

“Customers outside the basic supply should even consider making use of the special right of termination in case of price increases and let themselves fall into the basic supply,” he said. 

The basic supply – or Grundversorgung – is generally provided to people who don’t set up their own electricity or energy contract with another supplier. Prices are set on a regional level and used to be considered expensive, but in recent months they have generally slipped below the rates offered by private companies. 

For people already using the basic supply, the situation is a bit trickier.

“The electricity price increases at the turn of the year are in part drastic,” said Sieverding. “Unfortunately, the new customer tariffs via the intermediary portals are even higher, which means that a change of supplier won’t lead to savings in most tariff areas.”

That means it could make sense to sit tight for now and accept the higher prices, but keep an eye on any deals that could be offered in the coming months. 

READ ALSO: EXPLAINED: How to save money on your German electricity bill

Will electricity stay this expensive in the future? 

Energy prices were rising dramatically even before Russia’s war on Ukraine – in part due to pandemic supply issues – and experts don’t think they’re set to drop anytime soon. 

According to analysis by Check24, a sample household with an annual consumption of 5000 kWh paid an average of 29.4 cents per kWh in November 2020. One year later, it was 31.6 cents. Currently, the average is 42.7 cents.

Apartments in Lower Saxony

A few apartments are lit up in a tower block in Lower Saxony. Photo: picture alliance/dpa | Julian Stratenschulte

Electricity market expert Mirko Schlossarczyk, who works for consultancy firm Enervis, said 40 cents per kilowatt-hour was likely to be the new normal in 2023 and 2024, and that prices could even rise to 50 cents per kilowatt-hour after that. 

Although wholesale electricity prices could fall again significantly in the future, as a result of a prospective drop in gas prices and the increased expansion of renewable energies – the noticeably larger share of the end customer price would be accounted for by levies, surcharges, fees, and taxes, Schlossarczyk said.

“We will not see a return to 32 cents (the pre-war price) in the coming years simply because of the comparatively high wholesale electricity price level and the already announced increases in grid fees,” he added. 

But isn’t there supposed to be a price cap coming?

That’s right: from March 2023, the government plans to introduce a cap on electricity prices that will apply retrospectively from January.

However, this still won’t take electricity bills back to pre-war levels. Instead, 80 percent of a household’s normal electricity consumption will be capped at a price of 40 cents per kilowatt hour, while any excess over this will be billed at ordinary market prices.

That is likely to mean that households that don’t reduce their consumption by at least 20 percent still face much higher bills, and even those that do will pay an average of eight cents more for a kilowatt hour of electricity than they were in 2021. 

READ ALSO: Germany plans to cap energy prices from start of 2023

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