The high energy prices in Germany are to be slowed down. Among other things, the electricity price cap is to take effect from January 1, 2023. What the price brake includes and what that means for consumers and industry.
The situation is precarious. In Germany, prices are climbing due to multiple crises. In the energy sector in particular, things will become more expensive in the future. From January 1, 2023, the first municipal utilities are planning to massively increase the electricity price. For example in Munich, where the electricity from the basic supplier suddenly climbed from 753 euros for a two-person household with a consumption of 2500 kilowatt hours per year to 1676 euros.
However, the cost explosion in Munich is not an isolated case. In Konstanz, Elmsdorf, Trier and Rostock, for example, the municipal utilities are raising prices by up to 100 percent. If you want to save money in Germany in the future, you have to save electricity. In order to counteract this price spiral and to cope with the high energy costs, the federal government is planning to introduce an electricity price brake from January 1, 2023. The aim is to noticeably relieve citizens and companies of the sharply increased costs in 2023 with a price cap.
But what exactly does the electricity price brake actually do? And how do you benefit from it? All answers to the most important questions about the electricity price cap:
The electricity price cap, also known as the electricity price brake, is a threshold for the electricity price set by the state, measured against the basic needs of private consumers and small and medium-sized companies.
Just like the gas price cap, the electricity price cap should take effect on January 1, 2023. The formal approvals of the Bundestag and Bundesrat are still missing. On November 18, the Federal Cabinet is to decide on far-reaching relief for citizens and companies in the area of energy tariffs.
Germany’s energy suppliers, however, pointed out that January 1st was not a possible start date. “We are talking about a complex system in which millions of consumers have to be billed correctly with a large number of different tariff structures,” the Federal Association of Energy and Water Industries (BDEW) recently explained.
Energy has never been as expensive as it is now. But instead of panicking, you should calmly check potential savings at home. As our guide shows, there are many of them.
The problem: As the price brakes are currently designed, the municipal suppliers could implement them from March 2023 at the earliest, the Association of Municipal Companies (VKU) also explained. “We expressly warn against an earlier start or retroactive effect of the price brakes.” This is “operationally not feasible – so not feasible”.
The electricity price brake is similar to the gas price brake announced by the federal government. The cost of energy should be capped at a maximum amount.
Specifically, this means that private consumers pay a maximum of 40 cents per kilowatt hour (kWh). A maximum amount will also apply to small and medium-sized companies: no more than 13 cents per kWh of electricity should be due here. The state pays for everything that goes beyond the maximum amounts set and is offset by the utilities against the down payment.
But beware! The electricity price brake only applies to basic needs. For private customers, this corresponds to 80 percent of their consumption in the previous year. For electricity customers from industry, 70 percent of the previous year’s consumption applies. If consumption exceeds this basic requirement, the current market price applies.
While a one-time payment is planned as a further relief measure for gas customers, this does not exist for electricity customers. However: For those in particular need, there should be a hardship fund of 12 billion euros. According to the paper, regulations are planned for private consumers, small and medium-sized companies, housing companies, hospitals, care facilities or cultural institutions that are not sufficiently relieved by the electricity and gas price brake.
According to estimates, the electricity price brake will cost the state between 50 and 70 billion euros. The exact state costs of the measures depend on the development of electricity prices.
The money is fed from the so-called “defense shield” of the traffic light coalition. The Economic Stabilization Fund comprises a total of 200 billion euros and is planned by the federal government until spring 2024 through new debts to cushion energy costs for consumers and the economy.
In addition, so-called random winnings are to be skimmed off retrospectively from the beginning of September for payment. “In order to finance the electricity price brake for basic consumption and a dampening of network charges for electricity, random profits from electricity producers should be at least partially skimmed off,” says a statement from the federal government.
Random profits are earnings from electricity producers who are currently generating unexpectedly high profits. This applies, for example, to providers of electricity from wind and solar power. You benefit from the high price of electricity thanks to cheaper production.
According to the comparison portal Verivox, electricity prices in Germany are still at a very high level. A kilowatt hour currently costs an average of 48.16 cents. A family of three with a consumption of 4000 kilowatt hours pays an average of 1926 euros per year nationwide, the portal calculates. With an electricity price cap, as planned by the federal government, the total annual costs would fall by around 14 percent to 1665 euros. That would correspond to a relief of almost 260 euros per year.
The development of the electricity price in 2023 depends on several factors. According to forecasts, however, prices will climb enormously. According to a current study commissioned by the Bavarian Business Association (vbw), one megawatt hour (MWh) in wholesale could cost over 500 euros on average in the coming year. This was calculated by the Swiss forecasting institute Prognos. For comparison: Before the corona pandemic in 2019, 38 euros were due for one megawatt hour.
If the wholesale price is 500 euros, this means that consumers will have to adjust to an electricity price of 50 cents per kilowatt hour. For the calculation, the institute assumes that Russia will no longer supply gas in the coming year and that the current situation will remain.