German Bundesrat Approves Price Cap for Electricity and Gas

On Friday, the German Upper House (Bundesrat) approved the so-called "energy price brakes" that will cap electricity and gas prices in Europe's largest economy to cushion the impact of high prices on consumers and businesses.

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"We are not leaving anyone alone," Chancellor Olaf Scholz said, announcing that Germany would also support those who heat with oil or pellets. Further details are still pending.

The price brakes are to apply from March 2023, but consumers also receive a one-time payment in January and February. In order to give an incentive to reduce consumption amid the energy crisis, gas and electricity prices are only capped for 80 percent of average past consumption.

According to price comparison company Verivox, two-person households in Germany would save more than 500 euros on gas and 84 euros on electricity as a result of the price brakes.

"Compared to the gas price brake, the relief provided by the electricity price brake is moderate," Verivox energy expert Thorsten Storck said on Thursday. Nevertheless, consumers would be protected against further electricity price increases, Storck said.

To finance the energy price brakes, the German government is providing up to 200 billion euros through the Economic Stabilization Fund, which was originally established to distribute state aid during the COVID-19 pandemic.

Inflation relief packages totaling 95 billion euros were also passed this year. Measures include short-term financial support to pay heating bills during winter, and the reduction of the value-added tax (VAT) rate on gas and district heating from 19 percent to 7 percent.

Despite the relief measures, consumer prices for energy products were still 38.7 percent higher in November than in the same month a year ago. After peaking at 10.4 percent in October, the inflation rate declined to 10.0 percent last month.