“Energy-intensive companies in Germany should receive billions of euros in state subsidies to reduce electricity costs, provided they commit to cutting carbon dioxide emissions and continuing their operations,” announced Minister for Economic Affairs and Climate Action Robert Habeck. The minister's new proposal, which has not yet been approved by the government as a whole, would guarantee certain companies electricity at 6 cents per kilowatt-hour for 80% of their consumption until 2030, a move requiring 25-30 billion euros in public funds. Industry representatives welcomed the proposal as a “clear game-changer”. The massive subsidies provided by Europe's economic powerhouse to its domestic industry are bound to spark discontent in neighbouring EU countries that have less fiscal leeway, and the Ministry for Economic Affairs says it is “aware of these concerns”.
German Economy Minister Robert Habeck has proposed billions in state subsidies for energy-intensive industrial companies that compete internationally with cheap electricity, provided they commit to achieving climate neutrality by 2045 and maintaining their operations in Germany.
“Germany needs its basic industry just as much as it needs the industry of the future,” Habeck said in a press release. Industry is already shifting towards climate-friendly production methods, but the state “must support this path, as it will ensure that we remain a strong, competitive country with sustainable jobs,” he noted.
In the first week of May, Chancellor Olaf Scholz (SPD) and Finance Minister Christian Lindner (FDP) criticised the plans for large-scale subsidies, and Mr Habeck's proposal is certain to be widely discussed within the government and – if it proceeds – in parliament. Mr Habeck said his goal is to discuss the proposal with industry representatives, associations, and politicians.
Amid the energy crisis triggered by Russia's war against Ukraine, both private and commercial consumers have faced a sharp rise in the prices of gas, oil, coal, and electricity. The government has implemented support schemes to assist industry, but these are only a temporary measure. Consequently, some politicians have called for subsidies to reduce electricity prices for energy-intensive sectors to a few cents per kilowatt-hour from January 2024.
Minister Habeck insisted that subsidising electricity is necessary. “The various measures from last year have stabilised the industry, but we must not put these successes at risk,” he stated, adding that despite recent decreases, electricity remains 2-3 times more expensive than it was before the war in Ukraine.
25-30 billion euros to “bridge electricity prices” until 2030
Until 2030, Mr Habeck proposes setting a “transitional price for electricity” of 6 cents per kilowatt-hour (ct/kWh) for a “clearly defined circle of recipients” and 80 per cent of their consumption.
The price would be based on the average market price rather than an individual company's electricity price. If the annual average price on the electricity exchange exceeds 6 ct/kWh, the difference will be reimbursed to companies. Companies conduct actual electricity procurement independently of this mechanism. “Therefore, companies still have an incentive to purchase electricity as cheaply as possible in accordance with market prices,” the Ministry for Economic Affairs writes.
Based on current futures electricity prices, 25-30 billion euros of public funds would be required until 2030, according to the Ministry for Economic Affairs. It proposed funding this from the Economic Stabilisation Fund, which the government used to finance the package of measures to mitigate the consequences of the energy crisis.
The chemical industry association VCI called the proposals a “clear game-changer” in terms of international competitiveness. “An industrial electricity price helps us secure production and industrial value creation, and to even better master the transition to climate neutrality. Germany and Europe as a whole will benefit from this,” emphasised the lobby group's head, Wolfgang Große Entrup. He added that the industrial price cannot be a permanent solution, but must provide a “bridge to the future,” as there is no alternative. The Mining, Chemical and Energy Industrial Union (IGBCE) said that an industrial electricity price would give companies the certainty they need to make the massive investments required to make production more climate-friendly.
Germany “aware” of EU states' concerns that its financial clout could distort competition
The massive subsidies that the European economic powerhouse is granting to its domestic industry are bound to anger neighbouring countries that have less fiscal freedom.
Some EU member states have already introduced similar measures or are preparing to do so, the Ministry for Economic Affairs points out. However, “we are aware of the concerns of other member states that Germany could unilaterally disrupt competition due to its financial strength,” the ministry writes. Therefore, the government will “initiate a constructive exchange of views with the European Commission on all competition-related issues”.
For countries that cannot support their own industry, the ministry proposes the creation of a “temporary special programme ‘European Bridge Electricity Price’”, which could provide loans on favourable terms.
Cheaper renewables in the long run
In the long term, Minister Habeck proposes that industry receive cheap electricity from new renewable energy plants. The state would conclude so-called contracts for difference (CfD) to help build plants, or support direct power purchase agreements (PPA) between generators and industrial consumers with guarantees to reduce the risk premiums associated with the contracts.
There is no single electricity price for industrial consumers, but rather an extremely wide price range. Due to complex tax and levy systems, these prices depend on how much energy companies need, when they need it, how they acquire it, whether they compete with foreign rivals, and many other factors.