High energy costs: How France is capping prices

What is still being discussed in Germany has long been a reality in France: the high energy prices there are being capped by the state. But the aid has a downside.

“Don’t make a mess” is the French government’s motto. With around 16 billion euros, it will step in this year to settle the difference between the galloping wholesale market prices and the capped consumer prices. The gas price in France has been frozen at the October 2021 level for almost a year.

“Tariff protection shield” also in 2023

The price of electricity was capped if there was an increase of four percent. This applies not only to private households, but also to small businesses – such as Vincent Vigneron’s delicatessen in Strasbourg. “We absolutely have to cool our products, the sausage, the cheese. There’s no other way,” he says. Vigneron is therefore pleased that the government will extend the so-called collective bargaining shield beyond the turn of the year.

Not at four percent as before, but at least at 15 percent price increase. The government estimates another 16 billion euros for this. Without that cap, Vigneron’s electric bill would literally go through the roof. “We’ll have to pass the rising energy costs on to the customer at some point,” says the delicatessen. “Then our sausage and our cheese will be more expensive. But with the tariff protection shield we can keep it moderate. That’s reassuring.”

Massive aid depresses inflation

The government calculates: With the price cap in the coming year, the heating bill will only increase by 20 to 25 euros per month, depending on whether heating is done with gas or electricity. Without the price cap, it would be nine to ten times as much. The French state has further aid available for the economy: companies that have to spend at least three percent of their turnover on electricity or gas bills can apply for aid of up to two million euros.

But that’s not all, explains Economics Minister Bruno Le Maire: “We have also set up a pot for energy-intensive companies. They can apply for up to 50 million euros in aid.” By capping energy prices, the French government has managed to keep inflation comparatively low. According to the National Statistics Institute INSEE, it is 5.9 percent – in Germany, on the other hand, it is 7.9 percent.

No incentive to save

In Strasbourg, laundry owner Angelina Deffler sees that others have it worse: “It’s good news that the price cap will remain in place. Compared to other countries in Europe, we’re still lucky.”

But the French government’s low price policy also has disadvantages. Many French people have yet to learn how to save electricity and gas. The government is sounding the alarm: If not everyone saves energy immediately and drastically, companies are threatened with a gas ban in winter. And private households would have to reckon with planned power outages.