Germany has avoided ‘worst-case’ energy scenario

Germany has so far avoided the "worst-case scenario" of an economic meltdown after being cut off from Russian gas, and is optimistic its stocks will last through next winter, the economy minister said Thursday.

Economic and Climate Minister Robert Habeck in Oslo.
Economic and Climate Minister Robert Habeck in Oslo. Photo: picture alliance/dpa | Kay Nietfeld

Russia, the biggest exporter of gas to the European Union before it invaded Ukraine, turned off the taps in September last year over crippling sanctions imposed against it over the war.

Germany, Europe’s largest economy, was heavily dependent on Russian gas, and scrambled to find alternative suppliers, such as Norway and the United States, paying a higher price for their gas.

“The worst-case scenario that threatened this summer has been avoided so far… a complete meltdown of the heart of European and German industry has been avoided,” climate and economy minister Robert Habeck said during a visit to Oslo.

He told a press conference that gas “reservoirs are well-filled, more than 90 percent, and prices are falling.”

“Of course, nothing is guaranteed… but this shows that determined, good, and intelligent political action leads to success.”

READ ALSO: 7 reasons to be optimistic about life in Germany in 2023

Habeck said that while gas prices could rise again, he had a “certain optimism” ahead of next winter, as gas stocks have been boosted and deliveries of liquefied natural gas (LNG) have ramped up.

Like much of Europe, Germany has scrambled to build infrastructure to import LNG, and inaugurated its first terminal in December.

Norway boosted its gas production by eight percent last year and has become Europe’s leading gas supplier since war broke out in Ukraine.

“Germany has rarely been more important to Norway than right now. And I think Norway has rarely been more important to Germany, as it is right now,” Norwegian Prime Minister Jonas Gahr Store told the press conference.

On Thursday, the two countries agreed to boost cooperation in green sectors such as hydrogen, electric batteries, carbon capture and storage, and renewable energy like offshore wind farms.

Norwegian oil and gas giant Equinor and German utility firm RWE announced a joint hydrogen project aimed at helping Germany decarbonise its energy production.

The plan includes the construction of an unspecified number of plants – initially fuelled by Norwegian natural gas — to replace coal-fired power
plants which Berlin wants to close by 2030.

While natural gas emits less CO2 than coal, it will gradually be replaced by hydrogen as production capacity increases.

The “blue” hydrogen will be produced from natural gas at first, with more than 95 percent of the CO2 captured through the industrial process.

It will then be carbon-free “green” hydrogen, using energy from offshore wind farms that Equinor and RWE want to develop jointly off Germany and Norway.

The plan includes the construction of a pipeline to transport hydrogen between Norway and Germany whose feasibility is being studied.

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Why people in Germany are being advised to switch energy suppliers

As energy prices continue to fall in Germany, experts are advising people to consider switching supplier to get a better deal.

Why people in Germany are being advised to switch energy suppliers

What’s happening?

After Russia’s invasion of Ukraine in February 2022, energy prices reached record highs, causing misery for consumers in Germany. 

But in the last few months, the cost of gas and electricity has been falling. In fact, March was the first month since the start of the war where energy prices were below the cost from the same period last year.

At the moment many suppliers are lowering their prices for electricity and gas, and consumer protection groups are recommending that households check their contracts, compare prices and change suppliers if necessary.

“Household electricity prices for new customers have fallen continuously since December 2022,” said electricity market expert Mirko Schlossarczyk from the consultancy Enervis. Current offers are below 30 cents per kilowatt hour, he added.

“For existing customers and those receiving the basic (default) supply, however, the price level is still noticeably higher and is currently a little over 40 cents (per kilowatt hour).” These prices have only fallen slightly in recent months, Schlossarcyzk said.

Why have prices been falling?

The coalition government’s energy price caps account have helped to bring costs down. 

The electricity price brake  – which caps electricity costs for households and small businesses with a yearly demand of up to 30,000-kilowatt hours at 40 cents per kilowatt hour – has been applied to all electricity customers in Germany since January this year. 

The gas price brake – which caps prices at 12 cents per kilowatt hour – started in March 2023 and retroactively covers the months of January and February.

READ ALSO: Why consumers in Germany are seeing their energy costs go down

For the remaining usage, the regular market price has to be paid by households – and costs there have been going down significantly.

According to Schlossarczyk, the main reason for the decline in consumer electricity prices is the significant drop in wholesale prices.

A one-euro coin stands between the flames of a gas-powered cooker.

A one-euro coin stands between the flames of a gas-powered cooker. Photo: picture alliance / dpa | Holger Hollemann

However, many consumers haven’t yet benefited from the lower market prices for gas and electricity, as they are still being supplied with energy that suppliers bought at higher prices last year.

When it comes to electricity, 76 percent of electricity tariffs in the basic supply sector – in other words, the suppliers that have the most customers in a certain region – are still above the electricity price brake in some cases despite reductions, according to the comparison portal Check24. 

In the alternative supply, 88 percent of the tariffs are cheaper than the price brake, said a spokesperson.

With an annual consumption of 5,000 kilowatt hours, new customers currently pay an average of 31.4 cents per kilowatt hour. In the basic supply, on the other hand, it stands at an average of 43.2 cents. For comparison – according to the German Energy Association BDEW, the average electricity price in Germany was just under 32 cents in June 2021.

But the basic supplies aren’t immune to the downwards spiral in prices. According to a spokesperson, the comparison portal Verivox sees “a clear trend towards price reductions at present”.

For the months of June, July and August, the portal has so far registered 94 electricity price reductions averaging a 12 percent drop, although there are also a few increases. 

For the coming months, Schlossarczyk expects prices of 28 to 30 cents per kilowatt hour for new customers. For existing customer contracts and people receiving the basic supply he expects some noticeable price reductions.

What’s happening with gas prices?

According to Verivox, gas prices are also declining significantly.

In the basic supply sector, the portal has so far registered 75 price reductions by an average of 17 percent for June, July and August. Nine suppliers have announced increases averaging 9 percent.

Check24 has registered 106 gas price reductions of the basic supply since January. Despite these reductions, 90 percent of the gas tariffs in the basic supply are still above the gas price brake, the company reports.

A person in Germany holds cash. The government has pledged to clamp down on gas prices.

A person in Germany holds cash. The government is clamping down on gas prices with a gas price break. Photo: picture alliance/dpa | Lino Mirgeler

On average, consumers there were paying 13.3 cents per kilowatt hour of gas. In contrast, 80 percent of the tariffs in the alternative supply are already cheaper than the price brake. Check24 puts the average at 9.4 cents.

According to BDEW, the average gas price in Germany in June 2021, i.e. before the energy crisis began, was 6 cents per kilowatt hour.

What do consumer experts say about the energy price development?

They say that customers in Germany should take action if they can.

“We recommend switching suppliers,” said Christina Wallraf, energy expert at the Consumer Advice Centre in North Rhine-Westphalia.

The prices for new customers are “quite acceptable again”.

Those who want to switch should examine their existing contract, said Wallraf, adding that it is important to find out the remaining term and the notice period in order to work out the right time for a change of supplier.

“If you are currently in the basic supply, the contract can be terminated at any time, taking into account the statutory two-week notice period,” she said.

The consumer advice centre also suggests using comparison portals to make an individual adjustment before making a tariff comparison.

READ ALSO: How to change electricity and gas suppliers in Germany 

For example, the filter “direct switching option via the portal” should be set to display as many tariffs as possible.

Consumers should also make sure that prices are guaranteed in the contract in case case energy prices rise again in the coming winter.

The centre also advises consumers to do an internet search on the company to check if they have positive or negative reviews from previous customers. 

Could energy prices go through the roof again this winter?

Energy market expert Schlossarczyk thinks that is unlikely.

“Due to the price cap in the end customer price segment alone, the burden limit for household customers is capped until April 2024,” he said.

He predicted that there wouldn’t be a price explosion for household customers in the coming autumn and winter.