Energy prices could double long-term in Germany, utilities companies warn

After Russia’s invasion of Ukraine led to a squeeze on cheap energy supplies to Germany, gas and electricity prices reached record levels last year.

But in the last few months energy prices have been falling. Wholesale prices for electricity have dropped by around two-thirds since mid-December, while the price of a kilowatt hour of gas on the stock exchange is now around the same as it was before the war began.

But private households don't buy their energy on the exchange: they have supply contracts with utility companies, which are usually structured in such a way that end-customer prices are not directly adjusted to developments in the market price.

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Now German utility companies are warning that, in the long term, gas and electricity tariffs are set to be double.

Ingbert Liebing, CEO of the Association of Municipal Enterprises (VKU) told the Neue Osnabrücker Zeitung that, in light of the lower market prices, municipal utilities want to lower tariffs and "will do so as soon as there is room to manoeuvre". But he warned against false hopes of long-term price reductions.

Although he admitted that the crisis was "no longer quite so dramatic", he also warned consumers that the it could "foreseeably amount to a doubling of gas and electricity tariffs." Liebing did not name a time frame for the expected doubling of prices, however. 

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He also rebuffed criticism from consumer advocates that municipal utility companies are charging sky-high prices. "The current spot market and forward prices are not yet favourable enough to have a lasting price-reducing effect. For that to happen, they would have to fall even further and, above all, permanently," he said.

He criticised appeals from experts to consumers to switch from basic suppliers to discounters with cheap tariffs, saying: "It was foreseeable that fortune-hunters would now enter the energy market and think they can make a quick deal, at the expense of the municipal utilities and basic suppliers."

During the crisis, he said, the municipal utilities had provided stability when discounters cancelled their customers' contracts overnight. He warned against cheap tariffs that only offered low prices for a short period of time and then raised them again.

Like economist Veronika Grimm, the VKU CEO spoke out in favour of longer operating times for nuclear power plants. "In order to be prepared for emergency situations, it would basically be better to use the capacities we have," Liebing said.

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Grimm had previously argued that, even with the increased expansion of renewable energy sources over the next two to four years, there would not be enough generation capacity available "to calm the tense situation on the electricity market".