Skyrocketing energy prices are the main cause of high inflation. The federal government is now tackling the problem at its root: with a price cap on electricity, gas, and district heating. This turns a demand that IG Metall has been making for months into reality.
We explain how the price caps work—and what they actually achieve.
What do the price caps achieve?
The gas price cap caps the gas price for private households at 12 cents per kilowatt-hour (kWh). However, this does not apply to total consumption, but rather to 80 percent of annual consumption as projected in September 2022. The normal market price continues to apply to the remaining consumption.
The electricity price cap caps the electricity price for private households at 40 cents per kilowatt-hour. However, this does not apply to total consumption, but rather to 80 percent of previous consumption (typically, the previous year’s consumption). The market price applies to the remaining consumption.
When do the price caps take effect?
The electricity and gas price caps will officially take effect in March 2023. However, they will also apply retroactively to January and February 2023. This solution is intended to give utility companies time to adjust their billing systems. For households, the relief provided by the price caps will therefore be reflected starting with the March bill.
What do I need to do now as a consumer?
Nothing. The relief is applied automatically through the bills from gas and electricity providers—provided you have a direct contract with the provider.
For many renters, the relief will also be reflected in the landlord’s utility cost statement. Advance payments will decrease accordingly. Landlords are required to pass on the relief promptly.
The Federal Ministry of Economics explains the details here.
How much money will I save thanks to the price caps?
IG Metall has calculated the savings that the gas and electricity price caps will bring to two sample households.
Example 1: Single person (average gas and electricity consumption):
Total savings in 2023: 902 euros
Of this amount: gas price cap ► 706 euros, electricity price cap ► 99 euros, VAT reduction on gas ► 97 euros.
Example 2: Family of four ( average gas and electricity consumption):
Savings in 2023: 2,262 euros
Of this amount: Gas price cap ► 1,764 euros, electricity price cap ► 256 euros, VAT reduction on gas ► 242 euros.
Do I have to pay taxes on this money?
For most people affected, the discount on gas and electricity is tax-free. Those with a high income must pay taxes on the discount. The tax liability applies to those who are also required to pay the solidarity surcharge.
Does this mean the incentive to save energy is gone?
No. That’s because the gas price cap applies only to a portion of total consumption. Beyond that, the current market price still applies—and it’s very high. So the incentive to save energy remains. With a few behavioral tips, you can significantly reduce your personal energy consumption.
Does the price cap also apply to district heating?
Yes. The price cap for district heating works exactly the same way as the one for gas. Only the amount of the price cap differs: for district heating, it is 9.5 cents per kilowatt-hour.
What if I’ve just moved?
If you’ve just moved, you’ll receive the relief not based on your own consumption from the previous year, but based on the previous energy consumption of your new home.
How much money is available for the price caps?
The federal government is allocating 200 billion euros to cushion the impact of high energy prices. The money comes from the“Economic Stabilization Fund”(WSF), which dates back to the COVID-19 crisis. The fund is taking out loans for this purpose. The 200 billion euros are expected to be sufficient to curb energy costs for businesses and households through 2024.
Are the price caps fair?
In the current energy crisis, speed is of the essence. That’s why the federal government is opting for the simplest possible solution. High-income earners must pay taxes on the aid. And: Along with the electricity price cap comes a levy on windfall profits that some energy companies have earned due to high prices. The IG Metall union haslong called for such a profit levy .
Why are the price caps so complicated?
Because it’s not at all easy to find a sensible and practical solution for all households and businesses. Numerous questions need to be clarified: Which portion of consumption should be subsidized? How is this consumption determined? What about apartment buildings that share a central heating system? How do you prevent windfall effects in the economy?
Even the current proposal does not do justice to every individual case. The price caps must be quickly and practically implementable. Some simplifications are virtually unavoidable in this process.
What applies to heating oil and pellets?
Relief is also planned for these energy sources. The federal government is providing 1.8 billion euros for this purpose. The federal states are responsible for the specific implementation of the aid.
How do the electricity and gas price caps work for businesses?
The price caps described here also apply to small and medium-sized enterprises with annual gas consumption of up to 1.5 million kilowatt-hours or annual electricity consumption of up to 30,000 kilowatt-hours.
For businesses with higher annual consumption, the following applies: They will receive 70 percent of their gas consumption at a net working price of 7 cents per kilowatt-hour, 70 percent of their heat consumption at 7.5 cents per kilowatt-hour, and 70 percent of their previous electricity consumption at 13 cents per kilowatt-hour.
