German Cabinet backs controversial package to drop electricity prices

The German government on Wednesday backed a controversial package of measures to lower electricity prices.

Economy Minister Katherina Reiche said the Cabinet's decision - which still requires parliamentary approval - is good news for electricity customers in Germany.

"We are easing the burden on consumers, we are easing the burden on companies," she said.

Germany has struggled with consistently high energy prices since the Russian invasion of Ukraine.

The plans could save the average family up to €100 ($117) per year in electricity costs, according to government calculations.

The two-fold package includes a reduction in electricity network charges, and a cut in electricity tax for large industries and companies in the agriculture and forestry sectors.

The latter proposal, however, has been the source of widespread frustration in Berlin.

Business associations and consumer representatives have condemned Chancellor Friedrich Merz's administration for failing to extend the tax cut to all, as promised in the coalition agreement between Merz's conservatives and the centre-left Social Democrats (SPD).

The government has insisted that it will aim to expand the measure in the coming years, once it can be financed.

But Jörg Dittrich, president of the German Confederation of Skilled Crafts, said the decision not to reduce the electricity tax for everyone was a "massive breach of trust."

The IG Metall trade union, meanwhile, called for an internationally competitive industrial electricity price to be introduced quickly for energy-intensive industries, warning that thousands of jobs in the steel industry and other sectors are at risk.

The reduction in network charges is also contested.

The policy will see the government subsidize transmission grid operators to the tune of €6.5 billion in the coming year.

This should ensure that grid fees - a major component of electricity prices - fall for private households.

However, trade associations have warned that significant regional differences could emerge, with customers in some areas likely to see no decline in electricity prices.