Luxembourg Government to Subsidise Rising Electricity Prices to Tune of €171m

On Thursday 5 December 2024, Luxembourg's Ministry of the Economy reported that the government will extend subsidies to offset rising electricity costs in the new year.

The ministry elaborated that the government will continue to subsidise electricity prices with the aim of supporting households amid rising electricity costs. The relevant law provides for an envelope of €171 million.

The State contribution is expected to considerably reduce the price increase for customers with an annual consumption of less than 25,000 kWh. The reduction will automatically apply to all affected customers from 1 January until 31 December 2025. Further information on this is available online at www.subvention-electricite.lu.

Moreover, the ministry stated that the transition to electric cars and heat pumps remains financially advantageous compared to solutions based on fossil fuels, while contributing to the climate objectives.

It also clarified that the State's contribution to household electricity prices applies to the final price of electricity, which includes, in addition to the electricity itself, the costs for using the network.

The ministry noted that the extension of the State contribution means the price of electricity remains below that of neighbouring regions, also due to low taxes in Luxembourg.

Furthermore, the government has decided to accompany the gradual expiration of the energy price cap with the following targeted social measures for vulnerable households:

- a 10% increase in the cost-of-living allowance;

- tripling of the energy allowance;

- introduction of a reduced energy allowance for a wider range of beneficiaries;

- continuation and increase of the tax credit equivalent (ECI);

- renewal of the State's contribution to the financing of additional energy costs for accommodation facilities for the elderly for 2025.

As of 1 January 2025, the Luxembourg Institute for Regulation (ILR) and network operators will introduce a new tariff structure for the use of the electricity network.

The reported objective of this new tariff structure is to contribute to the development of a modern and safe electricity network, adapted to digitalisation and electrification by avoiding simultaneous uses. This is expected to limit the need to reinforce the network and, consequently, reduce costs for all users in the medium and long term.

Details on how the network tariff will work are available from the ILR (myilr.lu) and on the website of one's electricity network manager, where users can also consult simulation tools, from January 2025.

In general, all users can contribute to a more efficient use of the network, by demonstrating flexibility in their consumption, according to the ministry. It added that  companies able to adopt flexible use have the possibility of reducing their network usage costs by adopting behaviour that is beneficial for the network.

For residential customers using only standard household appliances, the impact of this new tariff structure will be negligible. However, those with high-power appliances (e.g. electric cars or saunas) could see a moderate increase in their network costs, which can however be mitigated by proactively managing their consumption, in particular by avoiding simultaneous uses or, in the case of electric cars, by reducing the car's charging power.

Details on the actions to be taken to reduce network costs are available from Klima-Agence (https://www.klima-agence.lu/fr/tarification).

The Economy Ministry offered some examples:

- Apartment (1,500 kWh/year): for an apartment consuming 1,500 kWh of electricity per year, the costs were €490 in 2024, rising to €590 in 2025 (including a State contribution of €110 in 2025);

- Single-family house (4,000 kWh/year): this case represents a single-family house consuming 4,000 kWh of electricity per year. The costs in 2024 were €880, increasing to €1,150 in 2025 (including a State contribution of €300 in 2025).

Other customer examples cited (and based on weighted averages) combine different types of electrification (heat pumps vs gas oil; oil heating and electric vehicle vs petrol/diesel car):

- New house equipped with heat pump (7,000 kWh/year): costs of €1,350 in 2024 and €1,760 in 2025 (including a €520 State contribution);

- New house (4,000 kWh/year) with gas heating (820 m3/year): costs of €2,170 in 2025; the financial advantage for energy transition customers is €410 per year compared to fossil fuel customers;

- Old house with heat pump (13,000 kWh/year): costs of €2,300 in 2024 and €3,130 in 2025 (including State contribution of €960);

- Old house (4,000 kWh/year) with gas heating (2460 m3/year): costs of €3,840 in 2025; the financial advantage for energy transition customers is €710 per year compared to fossil fuel customers;

- Old house (4,000 kWh/year) with fuel oil heating (2,755 litres/year): costs of €3,760 in 2025; the financial advantage for energy transition customers is €630 per year compared to fossil fuel customers;

- Single-family home with electric vehicle recharged with a power of 11 kW (7,000 kWh/year): costs of €1,350 in 2024 and €1,990 in 2025 (including a State contribution of €520);

- Single-family home (4000 kWh/year) with petrol car (1072 litres/year): costs of €2,810 in 2025; the financial advantage for energy transition customers is €820 (EV 11 kW) respectively €950 (EV 5.5 kW) per year compared to fossil fuel customers;

- Single-family home with electric vehicle recharged with a power of 5.5 kW (7,000 kWh/year): costs of €1,350 in 2024 and €1,860 in 2025 (including a State contribution of €520);

- Single-family home (4,000 kWh/year) with diesel car (924 litres/year): costs of €2,520 in 2025; the financial advantage for energy transition customers is €530 (EV 11 kW) respectively €660 (EV 5.5 kW) per year compared to fossil fuel customers.