Exploring Germany's New Gas and Electricity Price Brakes: A Brief Overview
Locations
Gas price brake:
The gas price brake will take effect on March 1, 2023 for both customers and small businesses, but will also be applied retroactively to January and February 2023. This setup allows energy companies to adhere to the billing procedures. For industry, the gas price brake automatically applies from January 1, 2023.
Households, small businesses:
Starting March 2023, citizens and small-to-medium enterprises will be subject to a gas price brake in which 80% of their natural gas consumption will be capped at 12 cents per kilowatt hour, with a discounted cap of 9.5 cents for heat. The remaining 20% must be paid at the price agreed on with the supplier. This plan applies from January 1, 2023 in hindsight and is based on the natural gas supplier's forecast of the consumer's annual consumption in September 2022. This means that prior gas consumption such as that in 2021 is not taken automatically only into account, but that early 2022 consumption will be as well. This could be beneficial for those who moved in 2022, as these individuals may have changed residences from smaller to bigger apartments and thus have a greater demand for gas. It is likely that this system may lead to disagreements between citizens and authorities in the future.
Industry:
Industrial customers can expect to get 70 percent of their natural gas requirements for 2021 from their suppliers at a guaranteed rate of 7 cents per kilowatt-hour from January 2023 onwards. Similarly, the cap for heat consumption will also be set at 7.5 cents per kilowatt-hour, again for 70 percent of the 2021 usage. For the remaining 30 percent, the industry will pay the regular market price.
Electricity price brake
The electricity price brake will be set in effect from March 1, 2023 and will retrospectively apply for January and February of 2023 for all customer groups.Private households and small businesses:
The electric price brake sets a limit on rates for households and small businesses with a yearly demand of up to 30,000-kilowatt hours at 40 cents per kilowatt hour. This applies to an allowance amounting to 80 percent of the annual consumption estimated by the energy supplier, which is based on past usage. In reality, complicated - and resulting in arguments - circumstances will be cases where there is no "historic usage" or not enough information, such as if a move occurs in 2022.
Industry:
Organizations that consume more than 30,000 kilowatt hours per year will pay a rate of 13 cents per kilowatt hour (in addition to network fees, taxes, levies, and surcharges). The rate applies to 70 percent of the company's past electricity usage based on their annual forecast. For larger corporations that are not billed using standard models, the quota is determined by their 2021 consumption.
Application in practice
Both the gas and electricity price caps help to keep monthly bills down. In Germany, however, this works slightly differently: customers generally pay regular instalments based on their estimated consumption. At the end of the year, they receive a bill to settle their actual consumption as well as a subsidy of 80% (or 70% for industry) of the forecasted consumption and the budget billing amount. Ultimately, this means that customers don't receive money directly from the state but 'indirectly' via their energy supplier in the form of lower bills. Hence, customers already benefit from the price cap before they have to pay the annual bill.The gas suppliers are entitled to compensation from the state due to the gas price brake. The compensation process is complex, and it remains to be seen how well it works.
Electricity price brake is more complicated. The electricity suppliers are reimbursed by their transmission system operator for the relief given. This transmission system operator is responsible for transporting electrical energy across networks, enabling the connection between electricity suppliers and customers. Funds to support these payments are generated through a new tax that extracts windfall profits from the energy industry, as well as subsidies from the federal government.
The refund isn't based on market prices, but rather a "work price" (Arbeitspreis) agreed between customer and supplier. This work price takes into account actual consumption, expenses and a reasonable profit - if market prices sharply decrease but the work price doesn't, or vice versa, energy suppliers receive high profits funded by the government gas and electricity price brake. This has caused heated debates in Germany, where various energy suppliers have increased customer energy prices prior to, and after, the electricity and gas price brake was put in place. Hence, the Federal Cartel Office ("Bundeskartellamt") is mandated to review any excessive price increases. If market prices fall, this will likely lead to more disputes. Discussions on this topic are expected to carry on for a long time in 2023.