Germany to scrap energy price cap from 2024
The German government has announced that the gas and electricity price cap, introduced to keep energy bills affordable after Russia's invasion of Ukraine, will be scrapped from December 31, 2023.
German government to end gas and electricity price cap
Germany’s Finance Minister Christian Lindner (FDP) has announced that the federal government will end the country’s price cap on gas and electricity on December 31.
The policy, which was introduced to limit the blow of rising energy prices following the Russian invasion of Ukraine, caps energy prices at a maximum of 12 cents per kilowatt hour of gas and 40 cents per kilowatt hour of electricity for 80 percent of a household’s average annual usage. The difference is then paid out by the German government.
The decision means that consumers can expect the cost of home utilities to go up just as the January weather bites.
Why is the German energy price cap being scrapped in 2024?
An interview with Federal Minister for Economic Affairs Robert Habeck (Greens) in the Augsburger Allgemeine this summer suggested that the policy would continue well into the spring of 2024. Habeck ensured that enough of the government’s budget remained to continue subsidising utility bills and the Bundestag agreed as recently as November to keep the policy going until March 31.
These government subsidies were being financed by Germany’s 200-billion-euro Economic Stabilisation Fund (WSF), which was originally established to fund policies for public health and help companies during the coronavirus pandemic.
Between 2020 and 2022 Germany’s debt brake (Schuldenbremse), a fiscal rule adopted in the Basic Law (Grundgesetz) in 2009 to limit government borrowing to no more than 0,35 percent of GDP, was suspended so that the government could borrow to fund emergency policies during the coronavirus crisis.
However, in November 2023 Germany’s Constitutional Court ruled that the federal government had illegally used money allocated to the coronavirus pandemic response to fund policies tackling the climate crisis. It is thanks to this ruling that “all special funds” including the energy price cap “will now have to be looked at and assessed”, according to a spokesperson for Olaf Scholz.
German consumers need financial security, say critics
The decision to scrap the energy price cap has already been criticised from many corners, including by Lindner’s coalition partners, the SPD. Speaking to Tagesschau, Chair of the Executive Board of the German Association of Energy and Water Industries (BDEW) Kerstin Andreae said that extending the cap would be an "important signal of stability and security to consumers".
Executive Director of the German Federation of Consumer Organisations (VZBZ) Ramona Pop agreed, saying that in-fighting surrounding the 2024 federal budget should not be done at the expense of those living in Germany.