Electricity and gas bills: the pitfalls of the price brake

Starting in the new year, the price brakes for electricity and gas should take effect. How is the relief calculated? What happens when you move? And how much will it be worth saving energy in the future?

The federal government wants to support consumers even more with the exploding energy costs. After the state completely takes over the deduction for gas and district heating in December, an electricity and gas price brake should therefore take effect from 2023. At the end of November, the traffic light coalition agreed on the relevant draft legislation. These are to be passed by the Bundestag on Thursday. But how exactly does the relief work? And what questions are still open?

How do the price brakes work?

According to the cabinet’s plans, private households will pay a capped price for 80 percent of the forecast gas and electricity consumption from March up to and including April 2024. For gas, this is twelve cents per kilowatt hour (kWh), for district heating 9.5 cents per kWh. The electricity price is set at 40 cents per kWh. The beneficiaries continue to pay the regular market price for the remaining consumption above the 80 percent limit. The state pays the difference.

Consumers automatically benefit from the relief: the energy supplier calculates the reduced gas deduction directly for owners. Tenants, on the other hand, are often not customers themselves. In this case, the landlord must pass on the relief as part of the utility bill. Even with electricity, consumers do not have to do anything to get the relief. The provider, with whom tenants usually have a contract themselves, calculates the reduced deductions.

Since the price brakes are also to apply for January and February, households will also receive a one-off retrospective relief amount for the two months in March.

How do utilities forecast consumption?

The calculation basis for the reduced gas discount is based on the annual consumption forecast in September, which is linked to the last annual statement, for example. The capped electricity costs are either also calculated using the network operator’s current annual consumption forecast or using actual consumption in 2021. That depends on the type of tapping point in question.

How much is the relief?

The extent to which households actually benefit from the price brakes varies depending on contract prices and consumption. According to the Federal Ministry for Economic Affairs and Climate Protection (BMWK), a family of four with an annual gas consumption of 15,000 kWh would have to pay 275 euros per month at the current market price of 22 cents per kWh. Thanks to the gas price brake, the household only pays 175 euros – a saving of 100 euros a month.

According to BMWK, a family of four with a consumption of 4500 kWh per year pays 188 euros per month for electricity at a market price of 50 cents per kWh. With the cap it is only 158 euros and thus 30 euros less.

Is it worth it to continue saving electricity and gas?

Yes. The incentive to save additional electricity and gas is maintained, since only part of the current consumption is subsidized. For every kWh that goes beyond that, the market price must be paid. In addition, if the households consume less than the forecast predicted, they get additional money back at the end of the year as part of the billing – the amount saved multiplied by the higher contract price.

For example, if the above-mentioned family saves 20 percent of the gas, they get 660 euros back. When it comes to electricity, she could get €675 back at the end of the year if she saves 30 percent. However, this is only true up to the point where consumers no longer have to pay for their energy at all. A payment that goes beyond the repayment of the advance payments is excluded.

What happens if I move house or change suppliers?

If a consumer moves at the turn of the year, it is no longer their own consumption from the previous year’s bill that counts for the calculation of the relief, but the previous energy consumption in the new apartment. If someone changes supplier in the course of 2023, they will not be able to pass on the discharge until the consumer has provided the new supplier with a copy of the invoice from the original supplier.

What happens when consumption changes significantly?

The government has not yet responded to this. According to the consumer advice centers, the method of using historical consumption as a basis for calculating price brakes has weaknesses. Because if the energy consumption of a household has recently fallen sharply because someone has moved out, they will receive a comparatively high amount of help. If, on the other hand, a relative lives in the house permanently, consumption and thus the necessary cost relief should have increased.

Consumers who have been very economical with energy in recent weeks could also be disadvantaged by the model. “They will then have more difficulties in using only 80 percent of the current energy and will have to pay the expected high market prices for the remaining consumption,” said the consumer advocates. The Federal Association of Energy and Water Management (BDEW) shared this tagesschau.de-Request only with: “The suppliers will not (and cannot) forecast possible savings effects in the future, but they use the previous consumption as a basis.”

So are the price brakes socially unfair?

The Left MP Dietmar Bartsch criticizes a social imbalance in the model. By focusing on past consumption, those who used the most electricity would receive full support, he said at the Bundestag session in early December. However, the alternatives – such as the individual survey of the needs of individual consumer groups – require “a long lead time and complex procedures”, the BMWK defends the method. That would jeopardize the timely implementation of the price brakes. In addition, the incentive to save energy is ensured by the current approach.

However, it is also possible to get the upper income groups to make savings in other ways, said Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Business Cycle Research (IMK) at the Hans Böckler Foundation, in a committee meeting last Tuesday. He proposed an upper limit for the number of kilowatt hours funded.

Ramona Pop from the Federal Association of Consumer Organizations (vzbv) also spoke out in favor of a minimum quota to which the state-guaranteed gross working price should be applied 100 percent. This will benefit consumers who have already realized all savings potential in the past, said Pop. This also makes sense for poorer households, since their average price would fall more than others due to lower consumption, argued Isabella M. Weber from the University of Massachusetts Amherst.

Where is there still room for improvement?

In order to create a social balance, the federal government is planning instead that the relief will be taxable from a certain income threshold. Further improvements are also planned. According to the BMWK, there should be a hardship solution for other heating media such as pellets or oil. “This design is currently being worked on between the federal and state governments.”