Austria is poised to undergo substantial changes in its approach to electricity prices. The government has recently announced a series of measures aimed at reducing subsidies and extending key market initiatives. Contact online >>
Austria is poised to undergo substantial changes in its approach to electricity prices. The government has recently announced a series of measures aimed at reducing subsidies and extending key market initiatives.
Finance Minister, Magnus Brunner, and Energy Minister, Leonore Gewessler, presented a comprehensive plan for energy reforms last week, highlighting the importance of promoting competition in the market and adopting a more sustainable approach to subsidies.
Starting July 1st, there will be adjustments to the subsidy structure for electricity consumption. The subsidy for the first 2,900 kilowatt hours (kWh) per household per year will now be reduced from a maximum of 30 cents per kWh to 15 cents per kWh. Additionally, the upper limit of the energy price, which determines the threshold for the subsidy reduction, will be lowered from 40 cents to 25 cents.
It is important to note that despite these changes, the initial 2,900 kWh will still continue to receive subsidies until the end of the year. This means that households will only have to pay 10 cents per kWh for the first 2,900 kWh, which accounts for approximately 80% of the average electricity consumption. This adjustment is expected to provide significant relief to households, especially those with higher electricity usage.
Moreover, households with more than three people will now be eligible for a subsidy of EUR 52.5 per person per year. This additional support aims to alleviate the financial burden on larger households and encourage energy conservation. Low-income households will also benefit from a substantial 75% reduction in grid costs, ensuring that they have access to affordable and sustainable energy services.
In addition to the subsidy adjustments, the windfall profits levy on energy companies will be extended until the end of 2024. This levy will be accompanied by further adjustments to expedite the growth of green electricity production. To encourage investments in renewable energy sources, companies investing in such initiatives this year or within the next 3 years will now be able to deduct 75% of the costs, effectively doubling the deductible amount.
Overall, these energy reforms demonstrate a significant step towards a more competitive and sustainable energy market. The government's focus on reducing subsidies, promoting renewable energies, and encouraging competition will not only benefit households but also contribute to the country's broader environmental goals.
Finance Minister Magnus Brunner and Energy Minister Leonore Gewessler outlined energy reforms on Wednesday, emphasising the need for increased competition in the market and a more sustainable approach to subsidies.
Here''s a breakdown of how these new rules will impact residents nationwide.
Effective from July 1st, the subsidy for the first 2,900 kilowatt hours (kWh) of electricity per household per year will be reduced from a maximum of 30 to 15 cents per kWh. The upper limit of the energy price, up to which the brake applies, will also decrease from 40 to 25 cents.
READ ALSO: How Austria has drastically reduced imports of Russian gas
Under the new regulation, households will pay only ten cents per kWh for the first 2,900 kWh, accounting for approximately 80 percent of average electricity consumption. Furthermore, households with more than three people will receive a subsidy of €52.50 per person per year, and low-income households will benefit from a 75 percent reduction in grid costs.
Gewessler emphasised that these measures aim to incentivise electricity providers to lower prices and foster competition in retail tariffs.
Extension of market measures
The windfall profits levy on energy companies will be extended until the end of 2024, with adjustments to expedite the growth of green electricity production.
Companies investing in renewable energies this year or in the next three years can now deduct 75 percent of the costs, doubling the deductible amount. Fossil fuel companies will face a 40 percent tax on profits exceeding five percent of their average for the years 2018 to 2021.
The government''s decisions have received mixed reactions from various political and industry stakeholders. While the FPÖ criticises the electricity price brake and profit levy, calling for a reduction in excise duties on energy, NEOS deems the electricity price brake as "nonsense" even at half the level.
READ ALSO: How to keep energy bills down in Austria
The SPÖ favours an energy price cap similar to Germany, and the ÖGB and Chamber of Labor express concerns about the timing of the reduction in the electricity cost cap.
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The Austrian internal energy supply is based on a balanced mix of energy sources.
An estimated one-third of Austria''s energy needs are supplied by domestic production and the remainder is imported from abroad. Due to Austria''s topography and other factors, 85 per cent of national primary energy production is derived from renewable sources, most notably from hydropower and biomass. Hydrocarbons make up the majority of imports. Therefore, the primary energy sources used to cover Austria''s energy consumption are diverse: in 2022, approximately 35 per cent oil, 21.3 per cent gas, 31.6 per cent renewable energies, 7.5 per cent coal, and 2.2 per cent combustible waste were used. Imports account for the remaining 2.4 per cent. As a result of the federal law for a non-nuclear Austria, the production of nuclear energy has been banned in the country since 1978.
According to this, hydrocarbons (oil and gas) still dominate Austria''s energy mix. Austria produces oil and gas in economically relevant quantities. The amounts produced cover approximately 10 per cent of the domestic demand annually, while the remainder is imported. The security of supply can be ensured by diversifying the sources of supply. As of 2022, oil imports come from 11 different countries, with Kazakhstan, Libya, and Iraq being the most important. There have been no oil imports from Russia since February 2022.
In 2022, the consumption of oil decreased by 4.2 per cent compared to the previous year. As a consequence of the COVID-19 pandemic, fuel consumption decreased in 2020 and 2021 in comparison to previous years. The consumption of fuel has recently recovered to a normal level as a result of the discontinuity of pandemic-induced curfews.
Furthermore, the war-related circumstances and Austria''s longstanding dependency on Russian gas prompted the Austrian Parliament to pass the Gas Diversification Act (Gasdiversifizierungsgesetz 2022, "GDG") as well as an amendment to the Austrian Gas Act (Gaswirtschaftsgesetz 2011, "GWG") introducing a strategic gas reserve (please refer to the "Developments in legislation or regulation" section below for more information).
Almost 85 per cent of Austria''s domestic primary energy production is based on renewables, firmly establishing Austria at the forefront of this sector. With the government''s efforts in promoting renewable energy, several other renewable energy sources, such as wind energy, geothermal energy, and solar energy, have gained significant importance over the past few years. However, the share of renewables in Austria''s gross final energy consumption accounted for only approximately 31.6 per cent in 2022.
When analysing the Austrian energy market, it becomes evident that it has become noticeably less competitive compared to previous years: in 2021, 332,985 households and businesses changed their electricity or gas supplier, almost as many as in the record-breaking year of 2019 (354,200). In 2022, only 218,707 changes were made. Consequently, the switching rates for electricity were reduced to 2.7 per cent, and 3.9 per cent for gas.
On 31 March 2022, the crisis cabinet of the Austrian federal government declared the so-called "early warning level" (Frühwarnstufe) of the emergency plan concerning Austrian gas supply. This stage was declared at a time when there were concrete indications pointing to a deterioration in gas supply. The early warning level primarily involves even more detailed monitoring of the gas market in consultation with market participants (e.g., large consumers) by E-Control, the Austrian regulatory authority for the electricity and gas market.
Austria must fulfil both the European energy policy-related objectives as well as its own energy strategy objectives. In June 2019, the EU enacted a comprehensive update of its energy policy framework to facilitate the transition away from fossil fuels towards "cleaner energy" and to deliver on the EU''s Paris Agreement commitments for reducing greenhouse gas emissions. The completion of this new energy rulebook – the Clean Energy for all Europeans Package – marks a significant step towards the implementation of the energy union strategy, adopted in 2015. The programme aims to promote energy efficiency, security of supply, renewable energy development, and emissions reduction at the same time.
To act in line with the new EU energy package, the Austrian government initiated a climate and energy strategy called "#mission2030" in June 2018, setting out strategies to cope with the ambitious 2030 targets. Furthermore, the Austrian federal government aims to achieve a climate-neutral Austria by 2040. Building on this, the current government programme includes the topics of enhancement of renewable energies in Austria''s total energy consumption, mobility services, infrastructure measures, and fleet decarbonisation in road transport. However, it should be noted that this government programme did not include concrete steps for achieving many of these objectives.
Taking into consideration the prior criticism, the Austrian federal government submitted its clear and comprehensive plan to Brussels at the end of 2019, which outlines the measures that Austria will take to achieve its 2030 climate targets.
To reduce oil and gas consumption, the Austrian government launched an initiative for 2023/2024 called "Away from Oil and Gas" to assist households, municipalities, and businesses in transitioning from fossil fuel-based heating systems to renewable alternatives. Approximately 14 per cent of Austria''s heating systems rely on oil, accounting for roughly 600,000 installations. As part of the restructuring offensive for both private individuals and companies, €940 million was allocated to this campaign in 2023/2024. Alongside the federal subsidy, the Austrian provinces are also bolstering the switch to environmentally friendly heating systems with their own subsidy programmes.
By 25 August 2023, 20,540 subsidy applications had been submitted, leaving a remaining €602 million available. This initiative, coupled with the ban on using heating oil in newly built homes under provincial building laws, could effectively reduce the prevalence of oil-fired heating systems in Austria.
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