Introduction to Germany’s Electricity Prices Crisis
Before the general elections in February in Germany, the country’s industry leaders triggered the alarm. They asked the new German government to do something about high electricity prices and warned of business closures and companies that move abroad if nothing happened. The concerns seem to be resonating with the new coalition government, which plans significant aid measures after a few weeks in office. However, some experts warn of potential disadvantages.
What are the Electricity Prices for German Industry?
It is difficult to determine a single number, as the existing relief of electricity costs varies depending on the size and sector of the company. According to a study by the Bayer Business Association, Germany’s industrial electricity prices in 2022 were on average European average. The latest EU data show that Germany occupies third place in the block in terms of electricity prices for non-household users, which includes industries, public institutions, schools, and government offices.
Germany’s Plan to Keep Up with the US and China
However, one thing is clear: companies in the USA and China pay significantly less. In 2023, industrial electricity prices in the United States were around 8 cents per kilowatt hour, and around 8 cents in China. In Germany, however, industrial companies pay around 20 cents. The coalition government’s plans in Berlin are reportedly based on broad-based aid measures to reduce industrial electricity prices. The government plans to reduce the electricity price by 5 cents per kilowatt hour for companies by reducing electricity tax to the EU minimum and reducing surcharges and network fees.
Is This Plan a Good Idea?
Andreas Fischer, an expert for energy and climate policy, told DW that "the broad-based relief is positive from the consumer’s perspective". Max Jankowsky, CEO of Lössnitz Foundry, agrees that the urgency to reduce electricity prices for industry is "recognized". However, the plan also draws criticism. Swantje Fiedler, scientific director of the forum for ecological-social market economy, says that a flat-rate reduction in electricity prices contradicts the needs of a system based on renewable energies.
The Advantages and Disadvantages of Cheaper Electricity
Leonhard Probst from the Fraunhofer Institute for Solar Energy Systems is of the opinion that lower electricity prices can reduce incentives for companies to use electricity more efficiently. However, cheaper electricity can make it easier to electrify industrial processes, which is better for the environment in the long run. The Lössnitz foundry would be an example of how the CEO of the company intends to switch from coal to an electric melting furnace. So far, however, the high electricity prices have been holding him back.
Will Brussels Prevent Berlin’s Plan?
The coalition agreement of the governing parties in Germany also mentions further relief for energy-intensive companies. It remains unclear whether this includes limiting the wholesale price of electricity, although some experts believe that this is the intention. Fraunhofer Scientist Probst warns that the artificial reduction could backfire the prices. Sebastian Bolay, Head of Energy, Environment and Industry, sees another problem for the government on the horizon: a price limit would affect market prices and probably not be permitted according to the rules of the EU State AID.
‘Tailor-Made Measures’ Make More Sense
Swantje Fiedler is convinced that a faster introduction of renewable energies in Germany "will reduce prices in the long term". In the meantime, targeted subsidies are more effective than ceiling price cuts and could contain special electricity rates for the use of heat pumps. Jankowsky also demands "tailor-made measures", in particular to help small and medium-sized companies (SMEs), and finds that many existing subsidies do not apply to them, which needs to be changed "and it has to be done quickly".
