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Germany says lower prices could cut state spending on energy caps

Germany last year set out a RM934.5 billion relief package to shield households and industry in Europe's biggest economy from surging energy prices, including gas and electricity price brakes.

Reuters
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A view shows 80 half-timbered houses in the old town of Freudenberg, western Germany on Feb 13, 2021. Photo: AFP
A view shows 80 half-timbered houses in the old town of Freudenberg, western Germany on Feb 13, 2021. Photo: AFP

German spending on its gas and electricity price caps could be lower than expected due to falling energy prices on futures markets, which will also reduce revenues from a windfall profit levy on energy firms, the finance ministry said.

Asked whether lower energy prices had pushed the government to change the spending forecast of its allocated energy aid package, a ministry spokesperson said: "The actual financial needs depend heavily on the further development of gas and electricity prices for end-consumers."

Germany last year set out a US$216 billion (about RM934.5 billion) relief package to shield households and industry in Europe's biggest economy from surging energy prices, including gas and electricity price brakes.

Under that plan, Berlin envisaged spending some €83 billion on those price brakes this year, the ministry said, adding that the windfall profit levy was expected to bring in revenues of tens of billions of euros to partly finance the energy cap.

"Since the economic plan was decided, gas and electricity prices on the futures markets have fallen, which could lead to lower spending on the gas and electricity price brake," the ministry said.

Benchmark Dutch front-month European gas prices have fallen almost 85% since their peak of over €340 per megawatt hour (Mwh) last August to around €53/MWh as countries managed to build huge gas reserves ahead of winter, which have not yet been significantly drawn upon due to unseasonably mild temperatures.

Germany's economy ministry said it was not possible to provide a direct estimate of how falling gas prices would affect the total volume of the relief package, as consumer prices depended on individual contracts with energy suppliers.

It is very possible that the new favourable consumer prices have little influence on the overall average price, the ministry told Reuters, adding the industrial consumers were facing even greater uncertainty.

"Against the background of these uncertainties and for reasons of budgetary prudence, the ministry is of the opinion that caution should be exercised against a hasty reduction in the funding requirements planning due to the current low end consumer prices," a spokesperson for the ministry said.

Data on the actual aid needed should be available in the coming months and would allow a more solid forecast of how much cash will be required, he said.

Germany has faced criticism over its mammoth state aid package for energy, which far outstrips what other nations in the European Union can afford.

A lower spending bill for energy subsidies would free up cash at a time when European governments are facing calls to significantly step up support for green investments in industry.

The EU is concerned that without more investments in this area, European companies will increasingly move to the United States, which has a US$369 billion scheme to subsidise green energy production.

On Tuesday European Commission President Ursula von der Leyen outlined plans to allow more state aid for clean tech sectors, and also to launch a new EU fund to support green industrial investments, to try to counter uneven spending among EU countries.

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