Germany announces energy windfall tax and €65bn package to help ease prices | Germany

Germany “will get through this winter”, said Olaf Scholz as he announced a €65bn (£56.1bn) package to help households and companies manage soaring energy prices, including a windfall tax on electricity producers.

The Social Democrat chancellor said on Sunday he was “very aware” many Germans were struggling to cope with rising prices, and that the government was prepared to help.

“As a country we will get through this difficult time,” Scholz said at a press conference with coalition partners, the Greens and the pro-business Free Democratic party. “We take these concerns very, very seriously.”

Scholz said Germany would use income from windfall taxes on electricity producers he accused of making “excessive” profits to reduce consumer prices for gas, coal and oil.

Some energy companies which may not be using gas to generate electricity were “simply using the fact that the high price of gas determines the price of electricity and are therefore making a lot of money,” he said. “We have therefore resolved to change the market organisation in such a way that these random profits no longer occur or that they are skimmed off.”

The German government has already announced €300 (£260) one-off payments for workers, but will now extend help to other groups. Pensioners, for example, will get €300 and students €200 (£170). Aiming to push down costs, the government also promised a “price brake” on energy costs, saying it planned to offer a yet-to-be determined amount of energy to all at a lower rate.

According to Associated Press, the government will also develop a successor to the popular €9 ticket, which allowed unlimited travel on local and regional transport across the country. The €9 ticket was announced in June for three months as part of measures to combat soaring inflation and rising fuel costs. The cost of the new monthly ticket could be in the range of €49-€69.

Scholz blamed Vladimir Putin for Germany’s high energy prices, saying Russia “has broken its contract” and was “no longer a reliable energy supplier”. At the start of the war in Ukraine, Germany got 55% of its gas from Russia, but this has fallen to 9.5%, amid a push to phase out Russian fossil fuels and drastic reductions in supply.

Europe faces a looming energy crisis after Russia halted gas flows from the Nord Stream 1 pipeline into Germany. Gazprom said on Friday after the market closed that the pipeline – the largest to Europe with capacity to deliver 55bn cubic metres of gas a year – would be shut down indefinitely because of a leak and would not restart until repairs had been completed. Siemens Energy, which supplies and maintains equipment to the pipeline, said the leak could be sealed and was not a technical reason to stop gas flows.

Energy analysts predicted a surge in gas prices when markets reopen on Monday. Before Gazprom’s announcement on Friday, gas prices had fallen partly on expectations that supplies would be turned back on as scheduled on Saturday.

Nathan Piper, an oil and gas analyst at Investec, said: “We are expecting record gas prices across UK and Europe next week as the impact of long-term restrictions of Russia gas supply is absorbed by the market following the indefinite shutdown of the Nord Stream 1 pipeline.

“The gas price will remain volatile, and I’d expect a sharp move up on Monday towards record 700p-800p a therm highs. However, the key and worrying point is that this is in the middle of summer – prices could move higher as demand increases for heating into winter … A big price jump next week has major implications on the [UK] energy price cap, and the cost for business/industry, who don’t have a price cap at all.”

Tom Marzec-Manser, the head of gas analytics at consultancy ICIS, said: “UK, European and global gas prices are expected to rally hard on Monday as markets readjust to this latest development … The now-indefinite closure of Nord Stream 1 reduces overall Russian pipeline flows yet further and will make balancing supply and demand this winter all the more difficult as well as expensive.”

Speaking on Saturday in his nightly video address, Ukraine’s president, Volodymyr Zelenskiy, accused Moscow of weaponising energy supplies against European countries it cannot “yet” attack with military force.

“Russia wants to destroy the normal life of every European – in all countries of our continent,” Zelenskiy said. “It is trying to attack with poverty and political chaos where it cannot yet attack with missiles.” The answer to this “decisive energy attack on all Europeans” was unity of European states, increasing western sanctions and action to limit Russia’s oil and gas revenues, he said.

As gas and electricity prices have risen to all-time highs, European countries have been scrambling to shield consumers and make energy savings. France has frozen gas prices at October 2021 levels and capped electricity price increases at 4% until at least the end of the year, and handed out €100 to low- and middle-income households to help pay energy bills. Spain, which is far less dependent on Russian gas than others, has promised to cut VAT on gas to 5% from 21% from October until the end of the year, and is promoting energy savings. Italy is also working on an emergency energy saving plan, but there is uncertainty about next steps, as elections later this month could bring the far right to power.

Meanwhile there is growing clamour for EU-wide action to cap gas prices. EU energy ministers will hold emergency talks on Friday, amid growing pressure for an overhaul of the bloc’s energy policy to decouple gas from electricity prices. Under EU energy rules, electricity prices are determined by the price of the most expensive fuel, which is usually gas. Countries that generate a lot of power from other fuels, such as renewable or nuclear, have argued for months that the system should be changed to protect their consumers.

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