With great haste, the cabinet has put together an emergency plan for the energy bill. The plan for a price cap for electricity and gas to give households ‘peace and security’ about their energy bills has not yet been finalized in detail. Nevertheless, Rutte IV wanted to present it on Budget Day, before the General Political Reflections that start this Wednesday. Because prior to this plan, the cabinet could count on criticism from opposition parties that it did too little to prevent money problems for ordinary Dutch people.
1 Who will benefit from the price cap?
Good news: most people who purchase gas and electricity will benefit from “the temporary price ceiling” that the cabinet announced on Tuesday. The maximum price, for a limited amount of energy, should protect Dutch households from serious financial problems. Only people who still have a permanent contract with lower energy prices that will continue until after 2023 will not benefit.
At least half of all Dutch households, the government expects, will be fully protected against further price increases next year – and in many cases from 1 November onwards. The condition is that they do not use too much energy, because there is a limit to the amount of gas and electricity whose price is maximized. For gas this is 1,200 cubic meters, for electricity it is 2,400 kilowatt hours. This limitation must ensure that government support does not lead to a waste of energy.
According to budget institute Nibud, an average terraced house uses 1,120 cubic meters of gas, for an apartment house that is 800, while heating a corner house requires 1,330 cubic meters. The volume limit of 1,200 cubic meters helps many people, but that may not apply to people who own a draughty rental home. They still have to pay the high market prices for part of their energy bill.
2 How much money will this measure bring to a household?
On average, a cubic meter of gas, including all kinds of levies and taxes, now costs consumers more than EUR 3.50. The cabinet wants to reduce this price to 1.50 euros, although this only applies to the aforementioned 1,200 cubic meters. The difference is made up by the government. If the gas price continues to fall in the near future, the ceiling may even be slightly lower: 1.20 euros per cubic meter. After all, with a falling gas price, the government has to make fewer adjustments. The cabinet then passes on this ‘windfall’ to consumers.
The price ceiling for electricity is 70 cents per kilowatt hour. That is almost 15 cents less than the price that energy companies now charge. The maximum prices are based on the January level, ie before the Russian invasion of Ukraine. According to the cabinet, the plans provide a total subsidy of 2,280 euros per household.
The energy companies, who are positive about the plan, indicate that there are still many uncertainties that need to be resolved next month or even later. “Energy suppliers can therefore not yet answer questions about the exact consequences for the energy bill of households,” industry association Energie-Nederland writes on behalf of companies such as Eneco, Essent and Vattenfall in a press release. It is also unclear whether people who are connected to a heat network or have a heat pump – and therefore do not use gas but use a lot of electricity – will be compensated extra.
These uncertainties also apply to the other parts of the support program that still have to be worked out. In this way, municipalities receive extra resources to quickly offer help to people with money worries.
It is clear that with the arrival of the price ceiling, the current tax relief on energy – such as less VAT – will be ended.
3 Does this help the households that need help the most?
For poorer groups, the bill can still (quickly) add up. Statistics Netherlands counted how many households fall into the group of the 25 percent lowest incomes as well as the group of 50 percent largest gas consumers. In 2018, the most recent measuring point, this concerned 8 percent of households. They usually have little savings to invest in insulation or are dependent on a landlord. If their consumption is above the limit for which the prices have been capped, they still have to pay the high market price. It is true that social minimums will also receive an energy surcharge of 1,300 euros next year. That was already decided in the summer, but now municipalities have the opportunity to pay out part of that money (500 euros) more quickly, even this year.
‘Energy poverty’ is mainly to be found in the northern provinces and along the borders of the country, such as Twente, the Achterhoek, Limburg and Zeeuws-Vlaanderen. There, poorer households more often live in large homes that require a lot of energy. In Pekela, Northeast Groningen, for example, 21 percent of households are poor, while they also use a lot of gas. In large cities, energy poverty is less of a problem: poor households more often live in flats, where consumption is much lower.
4 Why is a ceiling now possible?
Opposition parties PvdA and GroenLinks have been advocating a price ceiling for some time. Until recently, the cabinet did not listen to this, but is now introducing it. According to the cabinet, it has only been clear for a few weeks that such a ceiling is allowed by the European Commission, and that energy suppliers can also implement it. Such a ceiling has already been introduced in other European countries, for example in Spain.
Also read this article: The EU wants to intervene strongly in the energy market: price ceiling is on the table
5 How much money is involved in the plan?
That’s not clear yet. According to Minister Rob Jetten (D66, Climate and Energy), “The risk of price increases” will now lie with the government. If the prices for gas and electricity continue to rise, this price guarantee for households will therefore cost the government more money. The cabinet is canceling the proposed reduction in the energy tax, which cost 5.4 billion. But according to Jetten, that amount is “absolutely not enough” to pay the ceiling. There are still many billions of euros to come. “But we’re not going to make a big deal about it. As a government, we are now taking over all the risks.”
6 Do companies in need also benefit from this?
Not very much. For the time being, the price ceiling will only apply to households and a group of small businesses, which, like consumers, are already being helped with the VAT reduction. Large companies such as aluminum producers and fertilizer manufacturers, which are also groaning under the high energy prices, have not been financially supported by the government in recent months and will remain so for the time being.
Employees’ organizations VNO-NCW and MKB Nederland speak of a ‘first step’. They also want support for the slightly larger SMEs that are struggling, especially the energy-intensive ones. Because that is “really very necessary, because otherwise companies that we do not want to miss risk falling,” according to the interest groups in a joint response. This concerns, for example, bakers and gardeners. The cabinet promised on Tuesday that aid will also be provided for this group, although the details have yet to be worked out. A ‘specific subsidy scheme’ for SMEs that use a lot of energy is currently being looked at together with energy suppliers. That commitment came after “hard insistence” from the lobby clubs, a spokesperson emailed in an explanation.
The further elaboration will be a ‘complicated matter’, he admits. “But that they are going to work with it is a real profit.”
7 Are there any drawbacks to the plan?
One of the reasons why the government previously opposed a price ceiling is that it can remove the incentive to save on the consumption of (fossil) energy. While the government wants the energy supply to become ‘greener’, and since the Russian invasion of Ukraine, the government also wants to get rid of dependence on Russian energy.
By setting a price ceiling for the first part of the consumption, that problem is a lot less. But it is not gone, the cabinet acknowledges in a letter to parliament that it sent on Tuesday. A (substantial) part of the demand for gas will thus continue to exist.
The government also mentions another disadvantage. Households that in principle can bear the higher costs also benefit from the price ceiling, writes Minister Sigrid Kaag (Finance, D66) in the letter to parliament.
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