Merz Proposes Major Energy Reform for Households Post-Election

As anticipation builds for the outcome of the federal elections scheduled for February 23, there are strong indications that Friedrich Merz and the Christian Democratic Union (CDU) will emerge victorious. The CDU, along with its Bavarian counterpart, the Christian Social Union (CSU), has outlined an immediate action plan aimed at alleviating the financial burden on households.

The primary focus of this initiative is to reduce the electricity tax and network charges, aiming for a decrease of at least 5 cents per kilowatt-hour (kWh). The current structure of electricity pricing in Germany reveals that only 43% of the total cost is attributed to procurement and distribution, with the majority stemming from network charges and taxes. In 2024, household customers averaged 13.22 cents per kWh for network charges and an additional 10.27 cents per kWh for taxes and fees. Excluding these components, the base cost of electricity was only 18.10 cents per kWh.

Adjusting the electricity tax could be implemented relatively quickly, although the execution by energy companies may pose challenges. A significant consideration is how to finance this reduction; in 2023, the government raised 6.8 billion euros from this tax. The CDU and CSU propose to utilize funds from the transformation fund, which is presently allocated for other initiatives, such as the Renewable Energy Sources Act (EEG) subsidies for solar panel owners.

Reducing the electricity tax and network charges could provide substantial relief for both households and businesses. Currently, the electricity tax stands at 2.05 cents per kWh--far exceeding the European Union's minimum requirement of 0.1 cents per kWh. If the new government were to lower the tax to this minimum, a family consuming 4,000 kWh annually could save approximately 93 euros (gross) per year, while those with a consumption of 2,500 kWh would save about 65 euros, and those at 1,500 kWh would see a reduction of roughly 35 euros.

Experts underscore the importance of reducing the electricity tax to mitigate the ongoing financial strain on households. Although electricity prices have decreased since the crisis in 2022, they remain about 5% higher compared to pre-crisis levels. The burden of taxes and fees on electricity prices continues to hinder household budgets, making a tax reduction a logical step toward sustaining lower living costs.

Moreover, businesses, particularly those with high electricity consumption, would benefit significantly from these proposed changes. On the other hand, the implications of reducing network charges are less predictable due to regional variances. To fulfill its promise of lowering the overall electricity price by 5 cents per kWh, the Union would need to cut the electricity tax to 0.1 cents per kWh and achieve an additional 3.05 cents per kWh reduction in network charges.

Currently, households are paying an average of 10.8 cents per kWh for network charges, according to the Federal Network Agency. Between 2024 and 2025, many customers have already experienced some relief, with prices dropping by an average of 2 cents per kWh. A further reduction of 3 cents per kWh could result in an additional saving of around 100 euros for a household with a 4,000 kWh annual consumption, bringing their yearly electricity expenses down from 1,400 euros to approximately 1,200 euros.

However, implementing these reductions would place additional financial pressure on the state budget. Previously, the German government stabilized network charges with annual contributions of 5 billion euros. The Union plans to offset these costs by utilizing revenues from the carbon dioxide pricing mechanism, which, along with the electricity tax reductions, could lead to a total financial impact exceeding 12 billion euros.