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HomeGerman FinanceENERGY CRISIS IN GERMANY! Soon only the rich will afford electricity, gas...

ENERGY CRISIS IN GERMANY! Soon only the rich will afford electricity, gas and fuel

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Germany is facing the most expensive winter in decades! The prices for electricity, gas, oil and fuel are rapidly reaching new record highs.

The energy crisis in Germany is facing the most expensive winter in decades! The prices for electricity, gas, oil and fuel are rapidly reaching new record highs.

energy crisis

Where did the price shock wave come from?

Experts speak of a “perfect storm” on the world markets:

► Droughts in South America are causing hydropower plants to run dry. Gas has to be used to close the gap. Demand is increasing, so are prices.

► After torrential rain, huge coal mines flooded in China. Imports are increasing to supply Asia with energy in the post-corona boom (5.6 percent growth). That drives up the prices for coal (+ 310 percent), oil (+ 99 percent) and gas (+ 122 percent) worldwide.

► The OPEC states and Russia have decided not to increase oil production. At the same time, production was temporarily suspended due to hurricanes in the Gulf of Mexico.

The result: the US price for oil shoots to a seven-year high. Diesel and gasoline are more expensive than ever!

Another problem arises for Germany, says Claudia Kemfert, energy expert at the German Institute for Economic Research (DIW): “Our dependence on fossil fuels, especially gas imports from Russia.”

In fact, Germany has to import almost 90 percent of its gas consumption. More than half (55 percent) of this comes from Russian pipelines (30 percent from Norway, 13 percent from the Netherlands). The Dutch have cut their funding. The German economy is becoming all the more blackmailed by the Kremlin’s gas policy. Kemfert: “Instead of pumping more through the pipelines at lucrative prices, Russia is reducing its deliveries to the bare minimum – obviously not for economic, but for political reasons.”

► The goal of Kremlin boss Vladimir Putin: The EU should approve its new Nord Stream 2 pipeline and make itself even more dependent on Russian gas through long-term supply contracts.

The price spiral for fossil fuels is also causing electricity prices to rise to all-time records. The megawatt hour of base load electricity that electricity providers buy for the coming year cost more than 100 euros for the first time in September (previous year around 40 euros)!

As an emergency brake, the government has already reduced the EEG surcharge for promoting green electricity (around 21 percent of the electricity price) with a federal grant of 3.25 billion euros. The new traffic light coalition wants to abolish the surcharge entirely.

Nevertheless, according to analysts, electricity prices will continue to rise for the time being.

DIW expert Kemfert fears that even cuts in electricity and VAT, such as those decided in Spain and Italy, would hardly reach the consumer: “Lower energy taxes would not be a guarantee that prices would fall. Usually the utilities simply increase their profit margin. “

Germans pay the most

► The electricity prices for household customers including taxes and duties 2020 in cents per kWh (source: Eurostat):#

COUNTRYCENT / KWHTEN YEARS
Germany30.4+ 20%
Denmark28.3– 5%
Spain22.4+ 7%
Italy22.3+ 8%
Great Britain22.0+ 39%
EU cut21.3+ 13%
Austria21.0+ 7%
France19.0+ 34%
Poland14.8+ 9%
Netherlands14.3– 21%
Bulgaria10.0+ 14%
energy crisis

Why are prices really rising in Germany?

In autumn and winter, the costs usually rise due to the heating season and the increased power consumption for lighting. At the moment, however, other factors are driving prices. An overview:

  • Economic upturn after Corona: Many economies recovered faster than expected after the Corona pandemic. The result is increased energy demand worldwide, and gas prices are also rising.
  • Liquid gas in Asia: Tankers with liquefied natural gas (LNG) from the USA head for Asia instead of Europe, where even higher prices can be achieved.
  • Low inventories:  Europe-wide, the warehouses are currently only 77 percent full, in Germany it is 75 percent as of October 13th. 
  • Bad weather:  The past winter was very hard, which put the gas reserves under great pressure. Because there was less wind this year, many gas-fired power plants had to step in to produce electricity. That also drove gas demand.
  • Russian deliveries:  Russia, an important gas supplier for Germany, is accused of having delivered less of the coveted raw material. More on this in the next section.

Are the prices continuing to rise?

Yes, possibly, at least for the next few weeks. Because the heating season has only just begun. And there are no signs that wholesale prices will drop much this year.

Economists estimate that there could be a recovery once reserves replenish or Nord Stream 2 comes on stream. That could be the case next spring. According to the think tank Bruegel, the gas price could halve by April.

Why are gas providers having problems now?

Large energy suppliers, which also include basic suppliers such as Gasag, Vattenfall or Rheinenergie, conclude long-term contracts over several years. In this way, you secure your procurement costs against high price jumps. Smaller companies that stock up on short notice come under pressure because the price promises they have made to their customers can turn into negative business for them.

What can politics do?

There are both short-term and long-term ways to cap gas prices. In the short term, only the symptoms of the high gas price can be combated; in the long term, however, such a gas crisis should be prevented.

Short term steps

Some EU countries have taken steps to protect consumers. France, for example, has announced a tariff brake for electricity and gas and wants to pay poorer households 100 euros each.

According to this, the gas price will not exceed the tariffs applicable after an increase from the beginning of October during the winter until April. The price of electricity will not be increased until the end of the year, and then by a maximum of four percent from the beginning of 2022. Italy wants to spend three billion euros to waive some of their electricity and gas bills, for example through tax cuts.

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