Germany to Cap Electricity Bills by Taxing Producers - Report

Germany plans to cap electricity prices for households and industries to help them cope with soaring energy prices by trimming the profits of some producers, Reuters reported on Wednesday, citing a draft document from the Economy Ministry.

European power companies have enjoyed record profits this year due to soaring energy prices across the continent.

The proposed scheme would reportedly be funded by a €200 billion ($196 billion) aid package for households and businesses to deal with the cost-of-living crisis, which the German government announced last month, and partly by the new profit tax.

The draft plan, which is due to be presented by the government on November 18, does not indicate how much will come from the state package and how much from the tax on profit to finance the price cap.

According to the document, the windfall tax could skim 90% off of the profits that power generating companies make above their production costs. The levy would still account for companies’ basic costs, depending on the type of electricity, and would not include power generated from gas, hard coal, and biomethane due to the higher production costs.

The cap would be based on previous annual electricity consumption, and the scheme would be similar to the gas price cap. In an effort to curb soaring energy bills, Europe’s largest economy has recently introduced similar measures to cap gas prices, rejecting previous plans to impose a gas tax on consumers.

While Germany’s gas storage facilities are 95% full as of Monday, its grid operator has warned that even this may not be enough to make it through the winter. Earlier this month, the head of the Federal Network Agency, Klaus Muller, said that significant energy conservation will be necessary to prevent emergency rationing in the winter, and urged that consumption be cut by at least 20%.

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