Introduction to Germany’s Electricity Prices
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. Your concerns seem to be a resonance with the new coalition government of the conservative CDU/CSU party -Alliance and the Social Democrats (SPD) under the direction of Chancellor Friedrich Merz.
What are the Electricity Prices for German Industry?
It is difficult to determine a single number, since 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, based in Munich, 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-a category that not only includes industries, but also public institutions such as schools and government offices, which makes it difficult to specialize in conclusions about the effects on the industry.
Germany’s Plan to Keep up with the US and China
However, one thing is clear that 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 in the USA, and about 8 cents in China. In Germany, however, the 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. In Germany, the electricity price consists of the wholesale price plus electricity tax, surcharges, and network fees.
Is this Plan a Good Idea?
Andreas Fischer, an expert for energy and climate policy, told that "the broad-based relief is positive from the consumer’s perspective". But the plan also draws criticism. "A flat-rate reduction in electricity prices contradicts the needs of a system based on renewable energies," says Swantje Fiedler, scientific director of the forum for ecological-social market economy. Rather, the German energy system would need incentives for energy storage and flexibility, since the supply of renewable electricity fluctuates, with plenty of supply in summer and in winter rare.
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. Probst also said that 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 such an example of how the CEO of the company intended 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 a further relief for energy-intensive companies. It remains unclear whether this includes whether the wholesale price of wholesale is limited, although some experts believe that this is the intention. Fraunhofer Scientist Probst warns that the artificial reduction could backfire the prices: "If electricity is sold at short notice, but cheaply, the scarcity and prices continue to increase". 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 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, said Probst, "targeted subsidies" are more effective than ceiling price cuts and could contain special electricity rates for the use of heat pumps. Jankowsky also demands what he described as "tailor-made measures", in particular to help small and medium-sized companies, and finds that many existing subsidies do not apply to them what needs to be changed "and it has to be done quickly".
