German households will have to pay several extra hundred euros a year after a new levy was set to help utilities cover the cost of replacing Russian supplies, piling pressure on Berlin to come up with further relief measures for the public.
Trading Hub Europe, the German gas market operator, said on Monday it had set the charge at 2.4 euro cents per kilowatt hour (kWh) under legislation passed by the German parliament, which had an expected range of 1 to 5 cents.
The levy on gas that is used to heat homes in winter and generate electricity will be imposed from Oct. 1 and will remain in place until April 2024 in a bid to help Uniper – the country’s largest importer of Russian gas – and other importers cope with soaring prices. It will not show up in utility bills until November or December.
Vice Chancellor and Economy Minister Robert Habeck has said the tax will mean added costs of several hundred euros per year for an average household.
The government is seeking ways to soften the blow through financial assistance for poorer households and a proposed break on value-added tax. Chancellor Olaf Scholz tweeted Monday that "we will leave no one behind" amid the higher costs.
For an average family of four, the charge will amount to an additional annual cost of around 480 euros, or an increase of about 13% on the Verivox price comparison platform’s calculation of an average gas bill of 3,568 euros based on usage of 20,000 kWh/year.
"The alternative would have been the collapse of the German energy market, and with it large parts of the European energy market," Habeck said of the levy.
Germany’s Russia-dependent energy model had failed and would not be returning, he told reporters.
"We need to change in a hurry ... In doing so, we sometimes have to take bitter medicine," Habeck said, arguing for targeted relief to help households.
Utility EnBW, which is also exposed via its VNG gas division and took a 545-million-euro profit hit in the first half of 2022 as a result of lower Russian supplies, said it would take advantage of the levy, unlike RWE.
The industry will also be subject to the charge, with the German Steel Federation saying it would add around another 500 million euros a year to the sector’s energy bills, on top of 7 billion euros in extra costs already attributed to high energy prices.
"The gas surcharge significantly increases the cost pressure already exerted on the steel industry by the extreme price increases on the energy markets," its President Hans Juergen Kerkhoff said.
Economists warned that the levy would further accelerate inflation in Europe’s largest economy, which is already running at an elevated 8.5%, with some relief measures such as low-cost public transport tickets set to expire.
"The gas levy is expected to increase inflation, including the value-added tax, by almost one percentage point," said Commerzbank chief economist Joerg Kraemer, adding that the measure adds to mounting signs the German economy could slip into recession this winter.
The Federation of German Industries called for business support measures after Scholz on Thursday promised an additional relief package for households.
Germany is also awaiting a response from Brussels on a VAT exemption for the levy.
Russia has throttled gas flows to Germany, blaming technical problems and the red tape of Western sanctions for a drop in deliveries via the key Nord Stream 1 pipeline to 20% of its capacity. Berlin has called the reductions politically motivated.