The German government wants to stop energy companies from increasing electricity and gas prices in 2023, Bild newspaper reported Saturday, citing draft legislation.

The government has already ordered a cap on energy prices for next year to quell the energy crisis that threatens household budgets and the viability of many businesses.

What is the government planning?

A draft law on next year's energy price brake, which was announced by Berlin last month, will also force utility companies to justify any increase in price, for example, extreme volatility in financial markets, Bild reported. The plan was later confirmed by a spokesperson for the German economy ministry.

But the ministry cautioned that "not every price increase is automatically illegal."

The measure, if passed, would mean that hundreds of price increases already announced by energy firms for next year would have to be reversed.

The government wants to prevent energy firms from abusing an €83-billion ($87-billion) subsidy scheme to pay for the price cap.

The price rise justification will be part of the mechanism that firms will need to adhere to receive those subsidies.

"We want to prevent free-rider effects that encourage utility companies to charge higher tariffs," Michael Kruse, spokesman for energy policy for the neo-liberal Free Democratic Party (FDP) parliamentary group, told Bild.

Free riding occurs when one firm benefits from the actions and efforts of another without paying or sharing the costs.

Price cap already announced

The federal government plans to cap electricity prices from January at 40 cents per kilowatt hour for 80% of a household or small firm's consumption.

Mid-size and large companies will have their price capped at 13 cents per kilowatt hour for 70% of their energy consumption.

Gas prices will also be capped from March 1, with the possibility that they will be backdated.

Ahead of the price cap, hundreds of gas suppliers announced average gas price increases of 56% for next year, Bild reported, citing data from the Check24 price comparison website.

Electricity price hikes are currently set to rise an average of 60%, the figures showed.

The price rises will affect up to 7.5 million households that are not on fixed tariffs.

The energy crisis began last year when global gas demand returned following the COVID-19 pandemic and prices rose sharply.

The crisis was exacerbated by Russia's invasion of Ukraine in February which saw gas prices soar further.

Germany has been heavily reliant on Russian gas imports but sought alternatives as part of Western sanctions on Moscow, which led Russia to cut supplies in retaliation.

The standoff led to months of uncertainty over whether Europe's largest economy could secure enough energy supplies for winter.

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jsi, mm/ar, wmr (AFP, Reuters)