Federal cabinet adopts brake on gas and electricity prices – important relief for consumers and businesses

The cabinet adopted the draft legislation on the brakes on electricity, gas and heat prices today via a tacit acceptance procedure. The brakes on prices will help consumers and businesses alike, and will protect them against very high energy prices.

The draft legislation has been drawn up in close cooperation between the Federal Chancellery, the Federal Ministry of Finance and the Federal Ministry for Economic Affairs and Climate Action. The Federal Government approved it today.

The jointly drafted rules provide that a cap on electricity, gas and heating prices is to be imposed for a proportion of consumption. This protects all households and businesses as well as, for example, hospitals, nursing homes and cultural facilities. Everyone who is already paying very high prices will benefit. The price caps cover a large proportion of their current energy consumption.

The brakes on prices will apply from March 2023, and will also retroactively restrict the costs in January and February. The price brakes will be effective throughout 2023 and run until April 2024. The brakes on electricity, gas and heating prices form the heart of the economic protective shield worth a total of €200 billion. Some of the costs are being met by skimming off windfall profits made by electricity generation companies.

The rules governing the electricity, gas and heating price brakes are packaged together in two draft laws drafted by the Federal Chancellery, the Federal Ministry of Finance and the Federal Ministry for Economic Affairs and Climate Action. The Act on the Brake on Gas and Heat Prices provides that households, small and medium-sized enterprises consuming less than 1.5 million kWh of gas and heat per year, and nursing facilities, research and educational facilities will benefit from a limit on the gas price to 12 cents gross per kWh and to 9.5 cents gross for heat from March 2023 until April 2024.
The price cap applies to 80% of the annual consumption forecast in September 2022. The contractually agreed price must continue to be paid for consumption exceeding this quota. In March 2023, the relief for January and February 2023 will be imputed retrospectively.

The temporary brake on gas and heat prices is also intended to help the industrial sector, which is likewise affected by the high prices, to safeguard production and jobs. The price per kilowatt hour of gas will be capped at a net price of 7 cents for industrial clients. The equivalent price for heat will be 7.5 cents net. The statutory prices cover 70% of the annual consumption from 2021.

The Act on the Electricity Price Brake is also to apply from 1 March 2023 until 30 April 2024. In March, tax relief will also be credited retroactively for January and February 2023. Electricity prices for private consumers and SMEs (with an electricity consumption of up to 30,000 kWh per year) will be capped at a gross price of 40 ct/kWh, i.e. including all taxes, levies, surcharges and grid use fees. This applies to a basic requirement of 80% of the forecast consumption. For industrial clients, the cap is 13 cents, plus taxes, levies and surcharges, for 70% of their previous consumption.

In addition, there are hardship regulations for households, businesses and institutions that are particularly affected by the increasing energy prices, e.g. for tenants, housing companies, social agencies, and cultural and research institutions. If individual companies receive high amounts of funding overall, this must be compatible with State aid rules.

The brakes on energy prices have become necessary because Russia’s attack on Ukraine in violation of international law has resulted in a massive rise in European wholesale prices for gas within the space of less than a year.
This has also driven up prices for electricity and district heating. The high energy prices are impacting the bills faced by households and businesses in different ways and at different speeds, depending on the nature and duration of their contracts. The massive rises in prices not only jeopardise energy-intensive industries: all companies are having to cope with rising production costs. Many firms have therefore already started to increase the prices for their end products. This is a major cause of the present high rates of inflation.

The relief provided by the cap on electricity prices is partly refinanced by skimming off windfall profits in the electricity market. In this way, the Federal Government is implementing the requirements of the Emergency Regulation (EU) 2022/1854. The rules in the EU regulation are binding and must be applied or implemented by the Member States.

The profits are skimmed off in such a way that appropriate revenues are ensured so that operations are economically viable, whilst a substantial contribution is made to helping consumers and businesses. It only applies to profits that are much higher than anyone expected.

The profits start to be skimmed off from 1 December 2022. From this date, the Member States are obliged by the EU Emergency Regulation introduce a profit cap on the electricity market in response to the high energy prices. The cap is initially in place until 30 June 2023 but can – in the light of a review by the European Commission – be extended until 30 April 2024 at the latest. This means that the originally envisaged duration has been cut.

You can find a brief overview (in German) here.
The draft act on the brake on gas prices can be found (in German) here.
The draft act on the brake on electricity prices can be found (in German) here.