Energy price brakes are entering into effect

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Price caps for electricity, gas and heat Energy price brakes are entering into effect

With its electricity, gas and heat price brakes, the Federal Government aims to provide relief for private households and companies with regard to the sharp increase in energy costs. Following the Bundestag's approval, the Bundesrat has now given the definite go ahead for the corresponding laws.

7 min reading time

Graphic about the electricity and gas price brake

Gas price subsidy, cushioning the effect of rising energy prices: the purpose of the electricity and gas price brake is to provide relief for private households and businesses.

Photo: Federal Government

The Federal Cabinet presented the draft laws for the electricity, gas and heat price brakes on 25 November. The Bundestag adopted the energy brake draft laws on 15 December. In addition, it laid the foundations for hardship case aids for households using oil fuel, pellets or liquid gas for heating.

On 16 December, the Bundesrat agreed to the legally binding electricity, gas and heat price brakes. The laws entered into force on 24 December 2022 for the most part.

Federal Government pays for electricity, gas and heat discounts

The gas price brake provides for a gas price subsidy for gas customers. This discount is paid by the Federal Government to the energy suppliers, who are obligated to credit the relief amount to the consumers, either in their annual bill or via their instalments or advance payments. The Federal Government is funding the gas and heat price brake as part of its protective shield worth 200 billion euros.

Gas and heat price brake for private households and small and medium-sized companies

The gas price brake is going to apply for citizens and small and medium-sized companies from March 2023, and it will also cover the months of January and February retroactively. This means that an allocated amount of 80 percent of their natural gas consumption will be capped at 12 cents per kilowatt hour, which is a discount compared to the market price. The capped price for heat is 9.5 cents per kilowatt hour. Consumers must pay the normal market price for their remaining consumption, so that saving energy continues to be worthwhile. The allocated amount is based on the annual consumption forecast for 2023 from September 2022.

In March, these consumers will also receive a one-off retroactive relief amount for January and February.

The rule for tenants is that their landlords must pass on any relief amounts they received via the utility bill. Under certain conditions this can mean a reduction of the established advance payment for utility costs.

In order to cover the period until the gas price brake enters into effect, the Federal Government is also covering the advance payment for December for private households and small and medium-sized companies.

Gas price brake for the industrial sector

From January 2023, industrial customers will receive 70 percent of their natural gas consumption from 2021 at a guaranteed price of 7 cents per kilowatt hour from their suppliers. The price for heat is capped at 7.5 cents per kilowatt hour, also for 70 percent of the amount used in 2021. For their remaining consumption, industrial companies will also have to pay the regular market price.

Securing operation of hospitals and care facilities

Hospitals and inpatient care facilities are also going to benefit from the gas and heat price brake. Planning provides for the same conditions to apply for hospitals as for the industrial sector. In addition, there are special aid funds for hospitals and care facilities to ensure uninterrupted supply. The Federal Government is providing a total of eight billion euros for this purpose.

Suppliers’ refund claims against the state

Gas suppliers and companies who source gas themselves are entitled to claim financial compensation for the intended relief measures from the Federal Republic of Germany. Applications for advance payments for three months at a time can be submitted via an online platform from early 2023 at the latest.

Electricity price brake for households and companies

The electricity price brake is also designed to cushion the effect of rising energy costs for consumers and companies. It provides for a cap at 40 cents per kilowatt hour for the electricity price for households and small enterprises with an annual consumption of up to 30,000 kilowatt hours. This cap applies for an allocated amount of 80 percent of the amount used in the past, usually the amount used in the previous year.

For medium-sized and large companies with an annual consumption of over 30,000 kilowatt hours, the price is capped at 13 cents per kilowatt hour – plus grid fees, taxes, charges and levies. This cap applies for an allocated amount of 70 percent of the amount used in the past.  

The usual electricity prices apply for the remaining amount beyond the discounted contingent. This means that it is still worthwhile to save energy.

Relief available until April 2024

The electricity price brake becomes effective for all electricity customers from the start of 2023. In consideration of the supply companies’ requirements, the relief amounts for January and February 2023 will not be paid until March 2023. The price brakes are going to apply for the entire year of 2023. An extension until April 2024 is possible.

Hardship case aids for households with oil or pellet heating systems

Households heating with pellets, oil fuel or liquid gas are also struggling with significant cost increases. The Bundestag has therefore created the necessary conditions for hardship provisions for users of these types of fuel. For this purpose, the Federal Government is providing up to 1.8 billion euros from the Economic Stabilisation Fund. The federal states can use these funds for heating cost subsidies. The Federal and Länder Governments are going to enter into a corresponding administrative agreement in this context.

Grid fees to remain stable

Grid fees are an element of the cost of electricity and are therefore borne by electricity consumers. It became evident that a significant increase was to be expected in 2023. Aiming to protect private and commercial customers against additional strain, the Federal Government plans to contribute 12.84 billion euros in order to stabilise the transmission grid fees on the 2022 level in 2023.  

Disgorgement of windfall profits

Many electricity producers are currently generating unexpectedly high additional profits due to the situation in the electricity market. The Federal Government plans to siphon off such war and crisis-related windfall profits and to use them for funding a share of the electricity price brake.

Disgorgement of profits is possible under European law and in line with the regulation for emergency measures as a reaction to the high energy prices. The rule applies for electricity generation using lignite, nuclear energy, waste, mineral oil and renewable energies. Storage facilities, natural gas, biomethane and other gases are excluded from the arrangement, as are smaller plants with up to 1 megawatt, in order to avoid an unnecessary bureaucratic burden.

The laws of the European Union provide that hard coal plants do not have to be included in disgorgement. The Federal Government makes use of this option for the benefit of supply security. However, the Bundestag has created the possibility of additionally disgorging the windfall profits of electricity producers who burn hard coal. Prices for hard coal increased sharply in parallel with gas prices and are on a high level. When disgorging profits, it must be ensured that this measure does not give rise to an increase in the use of gas in electricity generation.

90 percent of windfall profits above a specified maximum amount will be disgorged. The producers may keep the remaining 10 percent as an incentive for efficient market behaviour.

The mechanism entered into effect on 1 December 2022. In line with the EU regulation, this measure is limited until 30 June 2023 for now, with the option to extend this period. However, the Federal Government determined that it must not be extended beyond 30 April 2024.

Preventing gas and electricity cuts

Citizens should be able to rely on the energy supply, even if some may not be able to pay right away. To this end, the Federal Government plans to further develop deferment agreements as an instrument and prevent gas and electricity cuts. A deferment agreement enables customers to pay existing energy bills in interest-free instalments while they are still supplied with energy.

Basic supply consumers are already entitled to conclude a deferment agreement. This right is to be backed up further. While the gas and electricity price brake is in place, the corresponding rules are also to apply to energy supply contracts beyond basic supply.

Frequently asked questions and answers:
Electricity price brake
Heat and gas price brake
Disgorgement of windfall profits