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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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ENERGY

Danish Energy Agency advises homes with gas heating to conserve

The Danish Energy Agency (Energistyrelsen) has issued guidelines to households heated by individual gas heaters in a bid to help them avoid very high bills.

Danish Energy Agency advises homes with gas heating to conserve

Around 240,000 households in Denmark will receive advice from the agency by physical or digital post, the agency said in a statement on Friday.

Gas prices in Denmark are currently rising as temperatures drop and energy production from wind turbines falls due to weather conditions.

READ ALSO:

“The Danish Energy Agency views it as an important task to help people like those with individual gas heaters [Danish: gasfyr] through good advice about how they best can reduce their heating consumption and take the worst off their gas bill,” head of office Vincent Rudnicki said in the statement.

The information letters are part of a national energy saving campaign which seeks to cut energy consumption during a period when prices can go through large variations.

When gas prices reached their 2022 peak in August, one megawatt hour of gas cost over 300 euros according to the Dutch exchange TTF.

At the beginning of December, the price has increased to 131 euros per megawatt hour after going through a period with lower prices during the autumn.

Although the price remains low compared to August, it is higher than it was two years ago, according to comments previously given to news wire Ritzau by Sydbank’s senior economist Søren Kristensen.

Kristensen said that the cost of heating a housing in Denmark is now 10,000 kroner per year higher on average than it was in the years prior to the energy crisis.

He also said that the winter is likely to push prices up from their current level.

“That will unfortunately mean that it will in no way be a cheap winter in relation to heating up the house or using electricity,” he said.

The Danish Energy Agency information letter will be sent to persons who own single-family houses which are heated by natural gas heaters, according to information stored on the national register BBR (Bygnings- og Boligregistret).

“At this time we have particular focus on those who live in villas or semi-detached houses because they have seen the largest of all the gas bill increases,” Rudnicki said.

In some cases, persons who no longer have gas heating will receive the letter if the BBR registry has not been updated, he noted.

Advice included in the information packs includes reducing temperature, using less hot water and having gas boilers services.

The saving tips may also be relevant for people who live in other types of housing, such as apartments, rental houses or terraced houses, according to the Energy Agency.

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