Germany approves gas and power subsidies, but industry worried about implementation

Germany's gas and electricity price subsidies to support consumers amid the energy crisis have been approved by parliament. The price caps form the centrepiece of Germany’s 200-billion-euro “defence shield.” They will take effect on 1 March 2023, but also retroactively cover January and February. The subsidies will remain in place for at least the entire year, and are supplemented by a hardship fund for people using oil or wood pellets for heating. The government’s support measure is based on recommendations by an expert council and will help households and businesses by putting a ceiling on gas and electricity prices that covers 80 percent of an average consumption level. Consumption beyond this limit will have to be paid at market rates in order to encourage energy savings.

The cap on the gas price will be 12 cents per kilowatt hour for households and small companies. Rebates are also granted to care homes, hospitals as well as social and cultural institutions. Industrial companies will pay 7 ct/kWh for gas, covering 70 percent of their consumption level in September 2021. The electricity price for households and small companies will be capped at 40 ct/kWh (including taxes and levies) and for larger companies at 13 ct/kWh (excluding taxes and levies) and cover the same consumption level as the gas cap. The hardship fund also makes users of oil, pellet or liquefied gas heating systems eligible for support and will cover households and institutions that are especially vulnerable to higher prices. “Everyone who is already paying high prices will receive support,” the economy and climate ministry (BMWK) said. Energy customers will not have to apply for the support but receive it through reduced rates charged by suppliers, the ministry explained. The measure will be partly funded by a levy on windfall profits made by energy companies during the price crisis after 1 December 2022. In order to avoid reduced investments in renewables due to the levy, guaranteed remuneration for new projects can be increased where necessary.

Energy industry association BDEW said the support scheme had become so complex that its implementation would amount to a “mammoth task” for the industry. Obliging suppliers to pass on the support through reduced rates would be “an absolute novelty,” as companies have to assume key tasks usually carried out by the state, BDEW head Kerstin Andreae said. “The state must quickly introduce a system that allows it to disburse support to citizens in a targeted way that is based on individual incomes,” she argued. Ingbert Liebing, head of utility association VKU, also said implementing the cap on time would be a major challenge for the affected companies but nevertheless remained necessary. “At our local utilities, we see people every day who can no longer pay their power or gas bills,” Liebing said. “That’s why the price caps are sorely needed.”