One year after the federal government’s measures to relieve the burden on customers, which became known as “double whammy”, the energy industry is warning of new price jumps.
Prices have now stabilized and this is being appreciated by customers, said Kerstin Andreae, chairwoman of the executive board of the Federal Association of the Energy and Water Industry (BDEW), to the German Press Agency. However, this should not obscure the fact that there are increased risks due to geopolitical developments.
“A hasty withdrawal of the relief could result in consumers being hit by new price jumps in the middle of the heating season.”
The government’s “double whammy”.
Review: As a result, especially of the Russian war of aggression in Ukraine, energy prices rose sharply in 2022. Russia significantly reduced gas import volumes to Germany. This put importers like Uniper in a dangerous situation. In order to save them, the government planned a gas levy worth billions that all gas customers would have to pay – but this was highly controversial.
On September 29, 2022, the government overturned the levy. Chancellor Olaf Scholz (SPD) announced a “defensive umbrella” to curb the sharp rise in energy prices – with a volume of up to 200 billion euros, which is unlikely to be used to its full extent. On the one hand, it was about government support for energy supplies, and on the other hand, it was about curbs on energy prices.
“You can say that this is a double whammy,” said Scholz at the time. He recalled his saying about government aid in the Corona crisis – that it was about getting out of the crisis with “oomph”.
Importers like Uniper were saved with billions from the state. The energy price brakes came, and the federal government reactivated the Economic Stabilization Fund (WSF) that was set up during the pandemic.
The effect of the “double oomph”
“The federal government, working together with the energy industry, has succeeded in ensuring security of supply,” said Andreae. Companies that had been importing gas from Russia for many years and had to replace gas deliveries from one day to the next, for example to supply municipal utilities and industry in Germany, were supported. “This ensured procurement and avoided a domino effect.”
Electricity and natural gas have, on average, become significantly cheaper for households in the past twelve months, as the North Rhine-Westphalia Consumer Center recently reported. This would mean that the price caps of the energy price brakes would be significantly undercut. For private households they are 40 cents for electricity and 12 cents for gas, each per kilowatt hour.
Electricity market experts do not expect any major price fluctuations in the near future. Experts see greater imponderables with natural gas. The wholesale prices next winter will depend on the LNG supply on the global market, the availability of pipeline gas and temperature developments, but also on savings by industry and households, said Enervis gas market expert Sebastian Gulbis. In a particularly cold winter, high prices could occur again.
The federal government is struggling to find a way
As a further measure, the federal government temporarily reduced the VAT rate for gas from 19 to 7 percent last year, thereby making gas cheaper. Federal Finance Minister Christian Lindner (FDP), however, plans for this special regulation to expire three months earlier than planned at the turn of the year – this is also controversial within the coalition. There could still be changes in the course of discussions on the 2024 federal budget.
The Ministry of Finance justified the move by saying that the crisis-related price peaks on the gas markets had now subsided. “Room for public budgets” should also be created.
The coalition has been debating for weeks about how companies should be relieved in view of the high energy prices compared to international standards. There is discussion about an industrial electricity price for particularly energy-intensive companies or a reduction in electricity tax – both of which would cost billions. The FDP rejects opening up the WSF for financing, also for constitutional reasons.
The Greens and the SPD parliamentary group want to use unused credit authorizations from the WSF to finance the industrial electricity price. According to the Ministry of Economic Affairs, around 9.6 billion euros have been paid out for the gas price brake as of mid-September. As of September 22nd, around 10.8 billion euros had been spent on the electricity price brake. The FDP strictly rejects opening the WSF, also for constitutional reasons.
End of the energy price brake
The energy price brakes expire on December 31, 2023, but an extension until a maximum of April 30, 2024 is stipulated in the law. Economics Minister Robert Habeck (Greens) and Lindner have campaigned for this. The Ministry of Economic Affairs said it was in discussions with the EU Commission about the extension. “If the prices don’t rise so dramatically, you don’t need them. But if the prices do rise, since this winter is still considered critical by the Federal Network Agency, the protection will still be there next winter.”
Andreae said: “After the difficult last winter, it is important to signal stability and security in energy prices to energy customers,” said Andreae. This would work best if the temporary VAT reductions on gas and heat did not expire until March 31, 2024, in sync with the energy price brakes. A quick decision is needed.
