Austria's government has decided on another billion-euro package to combat rising energy costs.

From December onwards, the electricity price for all households up to an annual consumption of 2900 kilowatt hours will be capped at 10 cents, including sales tax at 12 cents.

That is about a fifth of the current market price.

Any additional consumption will be billed at the market price.

The funding is granted independently of other aid.

In individual cases, for example in Lower Austria, this can lead to the state paying all of the electricity costs.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

  • Follow I follow

Finance Minister Magnus Brunner (ÖVP) calculated the costs of the "electricity price brake" at 3 to 4 billion euros.

Energy Minister Leonore Gewessler (Greens) put the subsidy at an average of 500 euros per household.

However, further expenses are likely to be added, and discounts on heating energy are being considered.

This also applies to aid to companies that have so far received nothing.

The challenges for the budget are "huge," said Finance Minister Brunner.

However, the state “cannot afford not to help”.

Unlike in Germany, the subsidy should be done automatically by the suppliers.

"Quick, easy and low-threshold," said Chancellor Karl Nehammer (ÖVP), who named Russia as the cause of the misery.

Now it is a matter of “continuing to help people”.

Criticism from economists: There are no incentives to save

Utilities only charge the reduced price for the first 2900 kilowatt hours.

The difference to the market price is reimbursed by the government, up to a maximum of 30 cents (net) per kilowatt hour.

Additional costs remain with them.

Electricity currently costs more than 50 cents on the spot market.

Those 300,000 needy people who are exempt from broadcasting fees can also apply for a deduction of 75 percent.

Households that have more than the three residents estimated in the base scenario can receive a larger quota of discounts.

While the opposition essentially approved of the funding, albeit criticized as too late, the criticism from economists was more fundamental.

The flat-rate subsidy, which also applies to second homes, means that half of the customers lose the economic incentive to save electricity, said the director of the Economic Research Institute (Wido), Gabriel Felbermayr.

Unlike a subsidy on the market price, the fixed price takes away the price risk from the customer.

Smaller households would be preferred.

The government had asked Felbermayr for proposals for the electricity price brake, but deviated from his ideas.

Wifo considers the reimbursement cap at 40 cents per kilowatt hour to be problematic.

This could lead to all suppliers offering a standard tariff of 40 cents in the medium term,

The think tank Agenda Austria complained about the large number of grants as well as possible double and multiple grants from the federal and state governments.

In Lower Austria, where elections will soon be held, all electricity customers will receive a credit of 11 cents for up to 80 percent of average consumption, which corresponds to 2900 kilowatt hours.

Since the federal government is now capping the costs for this at 10 cents, customers would have a “profit” of 1 cent per kilowatt hour.

Criticism also came from Vorarlberg and Tyrol.

Because the price of electricity there is lower than in the east due to the high proportion of hydropower, the subsidy is lower there, which has led state politicians to demand compensation.