Many Germans may soon be unable to pay energy bills, with electricity prices tripling in just a year, and there are no signs the price increases are set to slow just yet.
While eurozone data shows that inflation hit a new record of 8.6 percent in June, mainly on the back of soaring energy prices, Germany’s energy situation is in many ways especially precarious. Electricity and gas prices continue to skyrocket on the wholesale exchanges. The price of a megawatthour of gas rose to €148, representing a 74 percent increase over the price in mid-June. However, this number could go much higher, with energy expert Professor Claudia Kemfer, who has served as the head of the Energy, Transport and Environment department at the German Institute for Economic Research for around 18 years, saying she fears that prices may quadruple.
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“(Energy prices) could even be quadrupling,” said Kemfert during an appearance on German public broadcaster ARD. “Because the prices are exploding. Gas prices are quadrupling in some cases. If they are passed on (to the consumer), it’s really brutal. One actually recommends that people spend money put aside; that’s an enormous cost.”
According to Kemfert, Germans need to set aside €1,000 and possibly €2,000 to cover the potential rising energy costs.
So far, Germans have been mostly insulated from these electricity and energy price increases, but that may soon change. Once the energy companies consume the gas supplies they purchased at more favorable prices before the crisis, they will then have to resort to passing on the cost of price increases to the consumer.
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With an import rate of 89 percent, Germany is almost totally dependent on foreign supplies of natural gas
If Russia cuts gas through Nord Stream 1, Germany will have to choose a path forward. Either it will bail out the country’s energy companies, or it will pass the costs on to consumers. Currently, it is in talks with Uniper, which is highly reliant on Russian gas, to bail out the energy company and plug a €9.1 billion hole. Energy companies could still pass the higher costs on to consumers but only if Economics Minister Robert Habeck (Greens) applies paragraph 24 of the Energy Security Act. This move would protect the energy companies from a massive round of bankruptcies, but would likely mean billions in taxpayer bailouts.
For now, there are signs that the German government prefers to bailout companies like Uniper rather than make consumers pay, according to reports from Reuters, but that strategy may not hold out if the situation deteriorates further.
Germany’s unique tax burden
While Italy and France are also facing an extreme rise in energy and electricity prices, Germany has some unique taxes that harm consumers, such as the CO2 tax, introduced in 2021 by the federal government, which was raised from the initial €25 to €30 per ton this year. The tax was designed to ensure Germans contribute to the fight against climate change, but the tax has hit people hard given inflationary trends.
Even before devastating inflation levels hit, Germans were paying record amounts for gas. An average household with a consumption of 20,000 kilowatt-hours had to pay an average of €2,752 for gas over the previous 12 months — 113 percent more than in the previous year. And this is only expected to worsen.
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Gas is not the only issue, with electricity prices also soaring. A year ago, one megawatt-hour cost €80 on the Leipzig electricity exchange, but now it costs €239. This price has also not yet been passed on to consumers, but inevitably it will be, at least in part. As a result, electricity prices for German households have only risen by 34 percent so far, but the tripling for end customers will likely soon come. Even with electricity, every German has to pay the climate tax on top of that, which drives prices up further.
The abolition of the EEG surcharge on July 1 does not really relieve electricity customers. The savings of €5.1 billion fizzled out. A single household with an annual electricity consumption of 1,500 kWh should have saved about €5 per month. For a family of four with a 5,000 kWh electricity consumption, it would have been about €18.50. All of this is now being eaten up by rising prices and the climate tax.
In order to really relieve the burden on households, the federal government would have to seriously consider abolishing the electricity tax, which is currently 2.05 cents/kWh, and the value-added tax of 19 percent.