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ENERGY

German government ‘set to ditch controversial gas levy’

The gas levy - which would have cost the average family in Germany another €500 a year - likely won’t come into force after all, according to German media reports.

A woman holds euro bills next to a gas flame on a kitchen stove in Frankfurt (Oder).
A woman holds euro bills next to a gas flame on a kitchen stove in Frankfurt (Oder). Photo: picture alliance / dpa | Patrick Pleul

According to reports in the Frankfurter Allgemeine Zeitung (FAZ), Germany’s controversial Gasumlage – or gas levy – will get axed either Tuesday or Wednesday, with a Gaspreisdeckel, or a cap on the price of gas, set to replace it.

Energy and Economics Minister Robert Habeck of the Greens insisted once again just last week that the levy would go ahead.

It would see an additional 2.4 cents per kilowatt hour passed on to consumers, in order to stabilise Germany’s energy providers, which are also struggling with higher costs after Russia cut off cheap supplies.

German and Danish investigators are now investigating whether the Nord Stream II pipeline, which Berlin axed in February in the days leading up to Russia’s invasion of Ukraine, was deliberately sabotaged Monday, as it leaks gas into the sea.

With electricity prices having doubled and gas prices nearly quintupling, several politicians – also with the government’s own traffic light coalition – have called for the levy to be scrapped.

Lars Klingbeil, co-leader for Chancellor Olaf Scholz’s Social Democrats, told public broadcaster ZDF that the gas levy was on “politically shaky ground”.

“It must be clear that we have the strength to discuss this openly and correct ourselves if necessary,” he said.

“The gas levy makes gas prices more expensive, which raises the question of whether it makes sense economically,” said Finance Minister Christian Lindner, who leads the liberal Free Democrats (FDP).

FAZ reports that negotiations between the three governing parties and relevant energy companies were nearing an end Tuesday, with the Cabinet expected to make a final decision Wednesday morning.

A gas price cap is likely to replace plans for a gas levy, which would see a limit on what consumers would pay their energy companies for gas, leaving the federal government to pick up the bill for the difference when market prices go above the designated cap.

READ ALSO: EXPLAINED: Will Germany set a gas price cap and how would it work?

With the gas price cap already having the support of many Social Democrats and Greens, Lindner’s FDP is set to agree to it provided a few conditions are met.

“As the FDP, we can foresee a gas price brake coming into force,” Christian Dürr, who leads the FDP in the Bundestag, told Deutschlandfunk. “Now, frankly, I expect the Greens to move on the issue of extending the life of nuclear power plants and restarting coal-fired power plants.”

It’s not yet clear though how the government would pay for the cap. The FDP has been resistant to suspending Germany’s constitutionally enshrined debt brake, which limits what they can borrow.

The SPD and the Greens want to suspend it to pay for a gas price cap, which could cost the government between €30 and €50 billion according to one estimate.

The debt brake can be suspended in emergency situations, such as in March 2020, when the German government put it on ice to pay for the first Covid-19 rescue package.

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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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