The German government plans to prevent energy providers from raising electricity and gas rates in 2023, according to draft legislation cited in newspapers on Saturday. In an effort to address the energy crisis, which is threatening household budgets and many enterprises’ viability, the government has already mandated a cap on energy costs for the coming year.
What is the government planning?
A draft law on the energy price brake for the following year, which Berlin announced last month, will also require utility companies to provide justification for any price increases, such as extremely volatile financial markets. Later, a German economy ministry official confirmed the scheme. However, the ministry emphasized that “not every price increase is necessarily unlawful.” If the proposal is approved, hundreds of price hikes energy companies have already announced for the upcoming year will need to be cancelled. The government seeks to stop energy companies from misusing a subsidy program worth €83 billion ($87 billion) to cover the price cap. The method that businesses must follow to secure those subsidies will include the reason for price increases. The energy policy spokesperson for the neo-liberal Free Democratic Party (FDP) parliamentary group, Michael Kruse, stated, “We aim to limit free-rider effects that encourage utility firms to demand higher tariffs.” When one company reaps the rewards of another’s actions and efforts without bearing any of the costs, this is known as free riding.
Price cap already announced
For 80% of a household’s or small business’s use, the federal government wants to cap electricity costs in January at 40 cents per kilowatt hour. 70% of the energy consumed by mid-sized and large businesses will be capped at 13 cents per kilowatt hour. From March 1, gas prices will likewise be restricted, with a potential for retroactive application. According to data from the Check24 price comparison website, hundreds of gas suppliers announced average gas price rises of 56% for the upcoming year prior to the price cap, as reported in Bild. According to the data, there will currently be an average 60% increase in electricity price increases. Approximately 7.5 million homes without fixed tariffs would be impacted by the price increases. The global gas demand picked up after the COVID-19 epidemic, which caused prices to spike, and this is when the energy crisis started. Russia’s invasion of Ukraine in February, which caused gas prices to surge even higher, made the issue worse. Due to Western sanctions on Moscow, Germany, which had been highly dependent on Russian gas imports, looked for alternatives. As a result, Russia restricted supply in retaliation. Months of ambiguity followed the standoff on whether the biggest economy in Europe could secure enough energy supplies for the coming winter.