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Bundestag adopts energy price caps – important relief for consumers
The Bundestag today adopted the draft legislation on the caps on electricity, gas and heat prices in the second and third readings. This decision paves the way for another hardship fund for additional means of heating. The price caps and hardship assistance will help consumers and businesses alike, and will protect them against very high energy prices. The assistance is intended to limit the sharp increase in energy prices from the beginning of the new year. The relief will apply retrospectively from March 2023 for January and February 2023. Disbursement will begin in January for large industrial gas consumers.
The rules provide that a cap on electricity, gas and heat prices is to be imposed for a proportion of consumption. The funding will come from the newly reoriented Economic Stabilisation Fund. The price caps will protect 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.
It is important for consumers to note that, as with the immediate assistance for December, they do not need to apply for this relief. No applications for reimbursements or the like need to be submitted. The relief will be provided automatically by the supplier through lower monthly payments or lower final invoices on the basis of an existing contract.
The price caps will be in effect for the whole of 2023. An extension up to April 2024 has been set out but would have to be decided on separately. The caps on electricity, gas and heat 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 caps 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 means urgent relief is needed for both consumers and businesses.
An overview of the price caps:
The rules governing the electricity, gas and heat price caps are packaged together in two laws drafted by the Federal Chancellery, the Federal Ministry of Finance, and the Federal Ministry for Economic Affairs and Climate Action. The law on the gas and heat price caps implements the recommendations of the Commission of Experts on Gas and Heating. It stipulates that prices are to be capped for households and small and medium-sized enterprises that consume less than 1.5 million kWh of gas and heat per year, as well as for care facilities. The cap has been set at a gross price of 12 cents per kilowatt hour for gas and at a gross price of 9.5 cents per kilowatt hour for heat from March 2023 until April 2024. Where central heating systems are used in multiple residential units, the property manager or lessor must pass on the relief via the annual utility bill.
The price cap applies to 80% of the annual consumption calculated in September 2022. The contractually agreed price must continue to be paid for consumption exceeding this quota. This sets clear incentives for saving because those who save more energy do so at the new, more expensive price so that their saving energy pays off. In March 2023, tax relief will also be credited retroactively for January and February 2023.
From January 2023, the temporary cap on gas and heat prices will also help industry, which is affected by the high prices as well, to safeguard production and employment. 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 capped at a net price of 7.5 cents. These statutory price caps cover 70% of the annual consumption from 2021.
The law on the electricity price cap is closely based on the recommendations of the Commission of Experts on Gas and Heating. It will also apply from 1 March 2023 until 30 April 2024. In March, tax relief will also be credited retroactively here for January and February 2023. Electricity prices for private consumers and small enterprises (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 annual consumption calculated by the grid operator. For medium-sized and large companies (with an electricity consumption of more than 30,000 kWh per year), the cap is 13 cents, plus taxes, levies and surcharges, for 70% of their previous consumption. Here too, clear incentives for saving will be set via these rules, similar to the cap on gas prices.
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, welfare agencies, and cultural and research institutions. Funded by an additional hardship fund, the Länder will be able to limit prices increases for other decentralised means of heating, such as oil, pellets and LNG, by allocating grants to cover heating costs to households and businesses particularly affected by the rise in prices. If individual companies receive high amounts of funding overall, this must be compatible with State aid rules.
Energy suppliers will continue to have an incentive to offer the lowest possible energy prices, and the Federal Government is to present an ordinance by mid-March 2023 in order to prevent abuse. It can flesh out the rules for individual consumer groups in more detail, if necessary.
The relief provided by the cap on electricity prices is partly refinanced by skimming off windfallprofits 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, thus complying with EU rules. From this date, the Member States are obliged by the EU Emergency Regulation to introduce a profit cap on the electricity market in response to the high energy prices. The skimming off mechanism is initially in place until 30 June 2023 but can – in light of the review by the European Commission – be extended until 30 April 2024 at the latest with the approval of the Bundesrat.
To improve the conditions for investment for the expansion of renewable energy in parallel, the Bundesnetzagentur (Federal Network Agency) can raise the maximum rates at auctions for wind and solar energy by up to 25%. This allows the Bundesnetzagentur to take account of the changed investment environment, which is important in view of inflation.