(de-news.net) – Germany’s electricity prices remain under pressure from high natural gas costs. Chancellor Friedrich Merz faces growing pressure to extend electricity tax relief to households and all businesses as the governing coalition debates funding options. Opposition from the Greens and calls from state leaders have intensified the dispute, highlighting broader disagreements over energy costs, public spending, and the expansion of renewable power.

High natural gas prices continue to drive up electricity costs in Germany, with futures contracts for delivery next year recently exceeding 150 euros per megawatt-hour, nearly double their level at the beginning of the year. Energy analysts caution that the expansion of renewable power alone is unlikely to bring about a rapid decline in wholesale prices. Even if renewable sources eventually account for 90 percent of Germany’s electricity mix, gas-fired power plants could still determine market prices during more than half of all hours, according to Hanns Koenig of Aurora Energy Research, a consultancy specializing in electricity market modeling.

Koenig expects electricity prices to return to their pre-crisis range of 75 to 80 euros per megawatt-hour only in 2029 or 2030. By that time, natural gas prices could also fall to approximately 30 euros, returning to the levels recorded before the energy crisis of 2022. These projections suggest that German consumers may face elevated electricity costs for several more years, even as the share of renewable generation increases.

The persistence of high prices is partly explained by the merit-order system, which determines the order in which power plants are dispatched according to their variable generation costs. Under this mechanism, the most expensive plant needed to meet electricity demand sets the market price. As a result, gas-fired facilities can continue to influence wholesale electricity rates even when renewable sources supply a growing proportion of total generation.

Coalition faces pressure to extend electricity tax relief

Chancellor Friedrich Merz has called for energy costs to be reduced for all German consumers in the coming year, including through a cut in electricity taxes. However, the governing coalition of CDU and CSU has so far limited the tax reduction to manufacturing and other industrial activities, as well as agriculture and forestry. Although the coalition agreement commits the Government to lowering electricity prices, financial constraints have prevented the relief from being extended to households and all other businesses.

Finance Minister Lars Klingbeil has argued that the additional tax revenue expected by the Government would not be sufficient to finance a broader reduction. He has therefore called on supporters of the measure to identify corresponding funding sources rather than propose tax cuts without explaining how their costs would be covered.

Andreas Bovenschulte, the SPD Mayor of Bremen, has pressed the Union parties to present a concrete financing proposal. He has pointed to Merz’s own support for extending the reduction to households and businesses, arguing that the Union should be prepared to explain how it intends to pay for the policy. Bovenschulte supports an excess-profits tax as a potential source of funding but maintains that the Union opposes the approach, which he believes would otherwise help cover the cost.

State leaders and advocates of renewables seek broader action

The conference of Germany’s state premiers called on the Federal Government on Thursday to extend the electricity tax reduction to all consumers. The measure adopted during the summer, however, remains restricted to manufacturing, industry, agriculture and forestry, leaving households outside the existing relief scheme.

The dispute over tax policy has unfolded alongside calls from the SPD and the Greens to accelerate the expansion of renewable energy as a longer-term means of limiting electricity prices. Nina Scheer, the Social Democrats’ energy policy spokesperson in the Bundestag, argues that reducing the number of hours in which fossil-fuel power plants are required would limit their ability to drive up market prices.

Scheer has also pointed to ongoing wars and their effects on fossil-fuel markets as further evidence of the need to accelerate the transition to renewable energy. Her argument reflects concerns that Germany’s continued exposure to fossil-fuel prices can leave electricity costs vulnerable to disruptions in international energy markets.

Greens criticize delays and question funding priorities

Katharina Dröge, the Green Party’s parliamentary leader, has sharply criticized Merz over repeated delays in implementing the broader electricity tax reduction. She argues that another failure to in deliver the promised relief would further erode public confidence in the Chancellor, whose announcements have repeatedly encountered obstacles within the governing coalition.

Dröge considers a reduction overdue given persistently high energy costs. She estimates that households could save about 100 euros annually if the measure were extended to them. Lower electricity taxes would also reduce the operating costs of electric vehicles and heating systems powered by heat pumps, potentially extending the benefits beyond household electricity bills alone.

The Green parliamentary leader has further argued that funding could be found but criticized Merz and Klingbeil for twice favoring an expensive fuel-tax rebate that benefited oil companies while financing costly campaign promises made by Bavaria’s premier, Markus Söder. Her criticism centers on the Government’s allocation of public funds and the competing priorities involved in reducing energy costs.

Bundestag lawmaker Michael Kellner has raised a separate concern about the Government’s decision to reduce subsidies for electricity grid charges by 1 billion euros. He argues that the reduction places additional pressure on energy-intensive industries, which already face high electricity costs. Together, the disputes over electricity taxation, grid-charge support and renewable energy expansion highlight the coalition’s competing approaches to easing the burden of energy prices on German households and businesses.