The Government's Paying Your Bills
Austria's government wants to subsidize energy bills, with households paying only 10 cents per kilowatt hour (kWh) for the first 2,900 kWh they use every year
Servus!
I must pick up in this week’s newsletter where last week’s left off: The question of how best to deal with Europe’s rising electricity and gas prices, a crisis caused by Russia’s invasion of Ukraine. By week’s end, Europe’s leaders are expected to have decided upon which measures will be implemented continent-wide to dam rising prices. Suggestions include a levy on energy companies’ profits, measures to reduce demand for energy, and a price cap at which European companies could buy Russian gas. Europe is also considering decoupling electricity and gas prices and reforming the merit order system for ranking available sources of energy.
Domestically, the Austrian government has already intervened twice to soften the blow of rising energy bills on consumers, as I explained last week, including a package of one-time bonuses worth €500 per adult and €250 per child due to roll out in October. Last week, the government also afforded Wien Energie, the country’s largest energy provider, a €2 billion line of credit to keep it solvent and help it deal with major price fluctuations in the European energy market to which it is particularly exposed.
Now the government has agreed upon an even more robust form of intervention in the domestic energy market, one grandees in the conservative People’s Party (ÖVP) were pushing its leader, chancellor Karl Nehammer, to implement in July: a cap on electricity prices. Back then, Nehammer was opposed to such a measure, with sources close to the chancellor telling the Austrian tabloids that the cries to bring a price cap into force were opportunistic on the part of ÖVP state governors fearful of losing their jobs and eager to be seen to be doing something. Evidently, Nehammer took a look escalating energy bills and crumbling polling figures and abruptly changed his mind.
The electricity price cap will, according to initial reports, function as follows. The government plans to subsidize people’s annual energy bills such that they will only play 10 cents per kilowatt hour (kWh) for the first 2,900 kWh they use—80 percent of an average household’s yearly use. Anything above that will be subject to market rates, which currently range from anywhere between 18 and 72 cents kWh depending on one’s supplier. That cap will apply to all households irrespective of how large the property may be or how many people live there, a fact that has begotten criticism from the Chamber of Labor who sees this as unfair. The cap is projected to save the average household 500 Euros per annum.
The price cap was approved by cabinet on Wednesday. It will become Austrian law by October, come into effect in December, and remain on the books until mid-2024. How much this will cost the state over the next two years remains unclear. The government in Vorarlberg is concerned the 10 cents cap won’t help residents in their state (in which case, they’re crying over nothing, for it means people in Vorarlberg are already paying less than 10 cents per kWh). Subsidizing the market may also discourage individual consumers from saving energy and do nothing to bring down the price at electricity is bought and sold. This price cap only covers the electricity market; nothing has yet been announced regarding what the government plans to do about gas.
That the government has managed to agree an electricity price cap at all, however, is a sign of two things. First, that in spite of the internal chaos with the governing ÖVP, the axis between the ÖVP-controlled finance ministry and Green-run energy ministry is working well in a time of crisis. Second, that between his intervention to save Wien Energie (as he might frame it) and introduction of the electricity price cap, finance minister Magnus Brunner is becoming very well placed to step into the chancellor’s shoes, should his role as ÖVP party leader become available following regional elections in Tyrol, Lower Austria, and Salzburg.
Bis bald!
Thank you for being a subscriber to the Vienna Briefing. If you know someone else who might be interested in reading this newsletter, consider sharing it with them today.
The Vienna Briefing is a free newsletter. If you enjoy and would like to support my work, think about sending me a tip via PayPal.
Market Crash
Vienna mayor Michael Ludwig has requested state auditors examine the books of Wien Energie, which is owned by the City of Vienna. Auditors will look at the company’s trading on the energy markets between 2018 and 2022.
Plane Crash
An Austrian-registered Cessna 551 flew over Swedish airspace in the Baltic Sea on Sunday evening before crashing into the waters off northwestern Latvia. The jet “was flying between Spain and Cologne but when it changed course [and] air traffic controllers were not able to make contact”, the Latvian authorities said.
Career Crash
Former foreign minister Karin Kneissl has moved to Lebanon. The former RT contributor and Rosneft board member revealed her move to reporters at the Eastern Economic Forum in Vladivostok, Russia.