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ENERGY

Will Germany set a gas price cap?

As energy costs rise further, more German politicians are coming out in favour of a cap on gas prices - and the government is reportedly looking into the matter.

Will Germany set a gas price cap?
A person turns the knob on their heating device (Photo by Ina FASSBENDER / AFP)

What’s happening?

With electricity bills having doubled in some cases and German inflation seeing post-war record highs of 7-8 percent each month, the German government has been making a lot of money available to help give some relief to people struggling with their bills.

Some of this money is designed to specifically target the financial pressure brought on by the rising price of natural gas – which around half of German households use for heat. Gas also supplies around a quarter of German electricity, but has nearly quintupled in price.

The government’s relief measures include one-off payments and a cut on the VAT put on natural gas from 19 percent to 7 percent.

READ ALSO: KEY POINTS: Everything Germany is doing to help relieve rising energy costs

But more politicians and experts are saying that’s not enough, and are calling for the federal government to pass a Gaspreisdeckel – a cap on the price of gas.

The Left Party has been advocating such a cap for months. But this week, leader of the conservative opposition Christian Social Union (CSU) Markus Söder, whose Bavarian party is sister to the Christian Democrats in the rest of the country, also called for a gas price cap.

“We are experiencing an unprecedented increase in the price of gas and it is essential to prevent normal earners from becoming low earners,” he said.

CSU Leader and Bavarian Premier Markus Söder is in favour of a gas price cap. Photo: picture alliance/dpa | Nicolas Armer

He says the federal traffic light coalition should also abandon plans for its gas levy, which passes on some of the higher costs of importing gas to consumers, and to suspend the national debt brake. That would allow more government money to be spent on relief.

READ ALSO: Germany to push ahead with gas levy plans

Alexander Dobrindt, who leads the CSU in the Bundestag, says a gas price cap should cover 75 percent of consumption in private households, with the remaining 25 percent determined by market rates. Dobrindt argues that allowing the last quarter to fluctuate would incentivise people to still save energy.

Who else wants it?

Söder’s CDU colleagues in the Bundestag say they’re also in favour of a short-term cap on gas prices to get through the winter.

Berlin Mayor Franziska Giffey also called for a cap this week.

She says she’s in favour of a Energiepreisdeckel – or a cap on electricity prices that goes beyond simply gas prices, and intends to take the matter to a meeting the 16 federal state bosses will have with Chancellor Olaf Scholz and his federal government on September 28th.

READ ALSO: German word of the day: Deckel

“The government needs to put an energy price cap in and give people the security they need to sleep peacefully again,” said Giffey, who unlike opposition politicians like Söder, comes from the same Social Democratic Party as Chancellor Olaf Scholz.

Berlin Mayor Franziska Giffey, from Olaf Scholz’s Social Democrats, wants an electricity price cap for both households and businesses. Photo: picture alliance/dpa | Wolfgang Kumm

She says that businesses threatened by rising costs should also benefit from a cap, alongside private households. She says the national debt brake should be suspended to pay for this.

In an interview with public broadcaster ZDF, economics professor and member of the federal government’s economic experts committee Veronika Grimm also called for a gas price cap, provided it still be set up to give people an incentive to save energy.

The Federal Association of German Housing and Real Estate Companies (GdW) is also calling for a federal gas price cap, warning that many tenants may not be able to pay their utility costs.

READ ALSO: Tenants in Germany need eviction protections during energy crisis, says housing boss

What is the government doing about it?

Energy and Economics Minister Robert Habeck of the Greens ruled out a cap on gas prices earlier this week, but Finance Minister Christian Lindner of the liberal Free Democrats has set up a working group that will look at capping gas prices.

The expert group will examine whether a gas price cap is possible, how it might be put into place, and how such a cap would be paid for, ahead of consultations with the federal state heads next week.

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ENERGY

Is now a good time to switch energy providers in Germany?

The market prices for electricity and gas in Germany are cheaper now than they have been for a long time, leading some consumer advisors to recommend customers shop around for lower tariffs.

Is now a good time to switch energy providers in Germany?

Why are energy prices going down? 

Last year, energy prices in Germany rose to record heights following the Russian invasion of Ukraine. But now, partly thanks to a milder winter than initially feared, market prices for gas and electricity have taken a downturn.

READ ALSO: ‘Over half’ of Germans heating homes less or not at all

So far, however, most consumers are yet to benefit from the lower prices, as they are still being supplied with the electricity and gas that suppliers bought at higher prices last year.

This is particularly the case with the so-called basic suppliers (Grundversorger) – the companies that supply most customers in a region (such as Vattenfall or GASAG) – as they tend to buy electricity and gas on a long-term basis, in some cases years in advance. 

Last year, this meant that the basic suppliers could still offer the lower prices of the past, but gradually, they have had to raise their tariffs. 

“As a result, they now have some catching up to do and are passing on the high procurement prices to customers,” Christina Wallraf, an energy expert at the consumer advice centre in North Rhine-Westphalia explained.

Who is offering low prices?

Gas and electricity prices from so-called alternative suppliers – energy companies other than the basic suppliers – are now falling across the board.

This is because such suppliers have a short-term procurement strategy, which means they can “pass on favourable market prices more quickly than the basic suppliers buy for longer periods”, Hans Weinreuter from the Rhineland-Palatinate consumer centre explained.

For new customers – energy shoppers who join a new provider – prices are considerably cheaper than they were a few months ago. 

A green plug in front of an electricity bill. Photo: picture alliance / Jens Kalaene/dpa-Zentralbild/dpa | Jens Kalaene

The current average price of a kilowatt hour of gas for new customers is currently around 14.3 cents – 64 percent less than the average at the beginning of September last year when it reached a peak of around 40 cents. 

Electricity prices for new customers have also dropped by around 24 percent since mid-October, when a kilowatt hour of electricity for new customers still cost an average of 56 cents, whereas the current price is 42.7 cents.

For basic suppliers, the prices have moved in the opposite direction. Since the beginning of September, basic gas supply prices rose on average from 12.7 to 17.7 cents per kWh, while the price of basic electricity supply rose by 27 percent – from 36.8 to 46.6 cents per kWh since mid-October.

When does it make sense to switch?

Numerous consumer advisors recommend those who are currently stuck in very expensive tariffs to look around for alternatives.

“That’s where a look at possible alternatives makes sense,” says Hans Weinreuter from the Rhineland-Palatinate Consumer Center.

Udo Sieverding, an energy expert at the consumer advice centre in North Rhine-Westphalia, told the Berliner Taggespiegel: “Anyone who wants to switch now has a good chance of finding a cheaper tariff.”

He added that there is no rush, however, and said that he considers “the risk of prices at discounters going up again in the next few months to be low”.

A man turns up the thermostat on a radiator.

A man turns up the thermostat on a radiator. Photo: picture alliance/dpa | Hauke-Christian Dittrich

However, Julia Schröder, an energy law expert at the Lower Saxony consumer advice centre, recommended that consumers should not take the decision to switch suppliers lightly, as this usually means being bound to a new provider for one or two years when “nobody can foresee” how prices will develop over the next 24 months. A change would therefore be worth it only if it resulted in substantial savings, she advised. 

However, Ingbert Liebing, CEO of the Association of Municipal Enterprises (VKU), recently criticised the appeals of experts to consumers to switch from basic suppliers to discounters with cheap tariffs.

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

“It was foreseeable that now again soldiers of fortune would enter the energy market and think they can make a quick deal, at the expense of the municipal utilities and basic suppliers,” he said of the lower tariffs currently on offer by alternative providers. 

He warned against cheap tariffs that lure customers in with low prices for a short period of time and then raise them again in a matter of months. 

Can I switch from a basic to a discount provider?

Theoretically, switching from a basic to an alternative energy provider should be straightforward. Unlike those in contracts with special tariffs, customers of basic suppliers generally have the legal right to cancel at any time with two weeks’ notice and look for another supplier.

READ ALSO: EXPLAINED: How to change electricity and gas providers in Germany

Those who are not with a basic supplier should look at their documents and check for how long their current gas supply contract is still valid. If there is a supplier with more favourable conditions, it may be worthwhile to terminate the contract. 

Oncoming price brakes

Another thing to bear in mind when considering whether to switch energy suppliers is the oncoming price brakes for gas and electricity. 

READ ALSO: 7 reasons to be optimistic about life in Germany in 2023

In the case of electricity, 80 percent of consumption will be capped at 40 cents per kilowatt hour from March, backdated to January. The same applies to gas: from March, backdated to January, natural gas customers will receive a state-guaranteed price of twelve cents per kilowatt hour for 80 percent of their previous annual consumption.

A person holds a wallet with cash.

A person holds a wallet with cash. Photo: picture alliance/dpa | Lino Mirgeler

Despite the price brakes, it can still be worth switching if the contractually agreed energy price with your current supplier is over 40 cents per kilowatt hour for electricity and over twelve cents per kilowatt hour for gas.

That’s largely because the price brakes for electricity and gas are currently limited to just one year.

“If the price brakes are not extended, every kilowatt hour consumed will cost the regular contract price again next year. This is another reason why it will be important for consumers to choose the cheapest possible tariff this year,” said Thorsten Storck from Verivox.

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