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COST OF LIVING

How much will electricity tax cut save bill payers in Denmark?

Denmark is to reduce electricity tax to almost zero, in one of a number of measures announced on Friday to help households cope with soaring costs. How much do bill payers stand to save, and is the tax cut a good solution for the predicament?

How much will electricity tax cut save bill payers in Denmark?
Denmark has announced a temporary cut to electricity taxes, but an expert has warned that households must still limit energy use to avoid large bills while prices remain high. Photo: Ida Marie Odgaard/Ritzau Scanpix

A broad majority in the Danish parliament has agreed a new package of cost-saving measures for homes this winter, including sunk electricity taxes and increased family welfare.

Parliament has agreed the new measures to provide additional help to people, particularly families, who are struggling with energy costs.

A core component of the package includes lowering the electricity tax from 69.7 øre per kilowatt-hour to 0.8 øre – equivalent to the minimum rate permitted by the EU – for the first six months of 2023. An øre, literally translating to ‘ear,’ is a kroner-cent. 

This measure alone is estimated to cost the Danish state 3.5 billion kroner, while the total cost of the package to the government is around five billion kroner. The deal could be officially adopted by parliament as early as next week.

READ ALSO: Denmark announces new winter aid package for households

The decision is the latest in a number of measures taken by the Danish government in response to record energy prices.

As a result of supply stoppages for Russian gas, on top of inflation, energy prices in Denmark are at record levels, with high costs set to persist throughout the winter.

“Danes are hit hard by inflation. That can already be felt now. We can look ahead to a winter when it will be even more prominent,” Finance Minister Nicolai Wammen said at a press briefing on Friday at which the new package was presented.

“It’s important that we don’t provoke further inflation but we must also help Danes and keep Denmark on the right track. That is what we are doing with this agreement,” he said.

The cut to electricity taxes could save individual households between 1,000 and 2,000 kroner on their bills, according to an expert who spoke to Danish news wire Ritzau.

READ ALSO: How much will Danish energy bills go up this winter?

Despite this, the decision to cut energy tax may not prove to be the best fix for the issue, he said.

“With these initiatives a household will be able to spare between 1,000 and 2,000 kroner on their electricity bill,” Brian Vad Mathiesen, professor in energy planning at Aalborg University, told Ritzau.

“I think it would have been better to send a cheque to all households with a set amount and then keep the electricity tax,” he said.

The government has previously sent one-off payments to selected households in response to the energy crisis. In August, around 400,000 homes in Denmark received 6,000 kroner towards gas bills. To receive the money, the homes had to be primarily gas heated and under a specified total income level, among other criteria.

READ ALSO: Denmark’s state auditor to review potential errors in energy relief payments

But the government has said it wants to limit relief in the form of lump sums because this risks worsening inflation.

Mathiesen said that cutting the electricity tax could have the unwanted effect of removing the incentive for homes to save on electricity use.

More efficient use of energy is the most important tool in the current climate of extremely high energy prices, he said.

“What you risk is that people will take their foot off the brake on energy consumption and that could be harmful in relation to price setting – we could actually experience higher prices than expected,” he said.

The energy planning expert called for more government initiatives that would encourage the Danish public to restrict its energy consumption.

“I also note that there are some long-term initiatives to switch back to district heating [from individual gas heaters, thereby reducing gas consumption for heating, ed.]. I hope that there will be more of these savings initiatives. Both for households and businesses, because that is something that can reduce inflation,” he said.

READ ALSO: EXPLAINED: When should I turn on my heating in Denmark this year?

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At what time of the day is electricity cheapest in Denmark?

The electricity rate for customers in Denmark may vary hour-to-hour due to several factors and can fall way below the average price. So when is it cheapest?

At what time of the day is electricity cheapest in Denmark?

The price of electricity could defy the current era of soaring energy costs and fall to around 0 kroner (before transport and taxes are applied) for a short period around 2pm on Wednesday.

The electricity price per kilowatt hour could fall to zero on October 5th because of windy weather across Europe, which will result in huge electricity production from both on- and offshore wind turbines, broadcaster DR reports.

Combined with solar energy, which doesn’t factor in when electricity prices fall at night but does in the afternoon, this will force the market price of electricity close to zero, according to the report.

Additionally, heavy rain in Norway and Sweden, both of which have large hydropower production, can also help reduce the price of electricity in Denmark.

Before you connect everything to the grid at 2pm, keep in mind that electricity won’t be completely free to consumers. Transport costs and taxes of around 1.40 kroner still apply, DR notes.

The cost of electricity will nevertheless be low throughout Wednesday afternoon.

That sounds unexpected at a time when electricity costs this winter are expected to be far higher than they were in 2021 and the government has announced measures to help households pay bills. Cities are introducing their own saving measures to reduce electricity use.

“We actually expect [low daytime rates on Wednesday] to persist for a while. At the moment it looks like there will be wind until the weekend and we anticipate a lot of rain will fall,” Jack Kristensen, functions manager with Denmark’s largest energy company Andel Energi, told news wire Ritzau.

“It is predictably the hours where there’s not much consumption that it will be cheapest,” he said.

“Preceding days have been much higher in price,” he said.

Kristensen said he predicted hourly prices on Wednesday of 3 øre (0.03 kroner) per kilowatt hour from 1pm-2pm, followed by 0.2 øre (0.002 kroner) per kilowatt hour from 2pm-3pm.

The most expensive times of day – when people are waking up and around dinner time – have recently seen prices at around 1.10-1.20 kroner per kilowatt hour, Kristensen told Ritzau.

Taxes and transport costs should be added to these figures to get the overall price. In August, the total price of electricity per kilowatt hour hit a peak of 9.47 kroner on August 30th, according to data reported by DR.

People searching for electricity savings should also keep in mind that the rate falls at night.

Because drops in the hourly electricity price caused by increased wind production are highly dependent on weather conditions, they are not easy to predict.

However, apps can be used to monitor electricity prices. These include the ‘Min strøm’ app, which has been downloaded by tens of thousands of people in Denmark. Popular alternatives are the ‘Elpriser’ and ‘Andel Energi’ apps.

Lower nighttime prices can be taken advantage of by setting timers on thirsty appliances like dishwashers and tumble dryers and running them at night.

The autumn could bring about a general fall in Danish electricity prices compared to August and September because of windier weather, according to an industry analyst who spoke to DR.

“With robustly windy weather over Denmark, Sweden and Germany, we and our neighbours will be able to produce lots of cheap electricity and we will have hours with very low electricity prices during the course of the autumn,” said Kristian Rune Poulsen, senior consultant with industry interest organisation Green Power Denmark, in comments to the broadcaster.

High levels of sustainable energy production make electricity prices less dependent on gas prices because less gas is needed to produce the electricity Denmark needs.

The war in Ukraine is a major factor causing gas prices to go up, also affecting the electricity price.

READ ALSO: How people in Denmark are changing their energy use to keep bills down

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