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Germany Caps Gas and Electricity Prices for Households and Businesses

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Germany will cap gas and electricity prices, as part of the plan aimed at alleviating the effects of inflation in the energy sector by means of new relief for households and small and medium-sized companies.

The limit on the price of gas will remain at 12 eurocents per kilowatt-hour, while that of electricity will be 40 eurocents, announced Chancellor Olaf Scholz, at the end of the meeting with the heads of government of the Länder (federal states).

“It is a priority to support families and businesses in a situation in which energy prices have soared,” said the chancellor, who blamed “the brutal aggression launched by Russia” against Ukraine.

The gas price cap will probably begin to be implemented in February, as a compromise solution between the government’s plans -which planned to do it in March- and the regional powers -which insisted that it should be in January.

In parallel to these decisions, the Scholz government also agreed today, in the Council of Ministers, that the State will assume the gas bill of consumers in December, as an almost immediate measure to soothe the effects of the energy crisis.

The aid will also benefit both private individuals and small businesses and is estimated to cost approximately 9 billion euros.

Both the energy consumption price cap and the payment of the gas bill in December will be included in the extraordinary package of 200 billion euros announced by Scholz in support of households and industry.

His government, a tripartite between Social Democrats, Greens, and Liberals recently set the planned gas price cap for households and small and medium-sized enterprises with consumption of less than 1.5 gigawatt hours per year at 12 cents per kilowatt hour and 9.5 cents in the case of heating.

This regular monthly relief for consumers is calculated on 80% of the previous year’s consumption.

Currently, prices for new gas supply contracts average 21 cents per kilowatt/hour.

The commission of experts that advises the government estimates that curbing the price of gas for homes and SMEs will require financing of around 33 billion euros.

As far as industry is concerned, the gas price cap will be introduced in January next year until April 2024 and will reduce its cost to 7 cents per kilowatt/hour (net) for a basic quota of 70 % of the historical consumption of companies.

In this case, the commission of experts estimates the necessary financing at around 21 billion euros.

To cover the period until the introduction of the gas price curbing for households and SMEs in March 2023, the government will take over the amount of the gas and district heating instalment payment corresponding to December as immediate aid.

The electricity cap could be introduced as early as January, as Finance Minister Robert Habeck announced a few days ago, although no further details have been provided.

The federal and regional governments thus endorsed the proposal of the commission of experts to introduce it in March next year and until April 2024, although it was finally brought forward by one month.

Year-on-year inflation in October was 10.4 %, the highest level since German reunification -1990-, driven mainly by the energy sector, with an increase of over 47 %.

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