Berlin settles spat over preferential power tariff for industry

Germany will not cap power prices for energy-intensive industries but will lower power taxes for businesses to the EU minimum while extending special tariffs for the most energy-hungry companies for five years.

In May, Economy Minister Robert Habeck tabled plans to cap prices for industrial users of electricity at €60 per Megawatt-hour, aiming to appease growing discontent among the country’s energy-hungry industries. 

The proposal, extremely popular with unions and presidents of Germany’s federal states, was fiercely resisted by Chancellor Olaf Scholz and Finance Minister Christian Lindner as well as economists, who said the measure amounts to a subsidy.

After months of back and forth, the three ministers announced a compromise on Thursday (9 October).

Instead of spending €30 billion on capping power tariffs for 10 years, as Habeck suggested, or slashing everyone’s electricity tax by 95%, as put forward by the liberal Freedom Party (FDP), the compromise marries the two starkly different approaches. 

Taxes on power used by industry, approximately one-third of total demand in Germany, will be slashed down to the EU minimum of €0.50 per MWh.

Special benefits will be maintained for the 350 most energy-hungry companies in Germany, who wil receive €2.6 billion in 2024 to soften their energy bills because they are exposed to global competion. The top 90% will get to keep the “super cap” rule, which cuts their bill even further.

“This is very good news for Germany as a business location in these times,” said Scholz.

“With this decision, we are focussing on a market-based solution with all its advantages,” said Lindner, adding that consumers will still be subject to the 2003 tax rate of €20.5 per MWh. 

The measure will be legally enshrined until 2025, with a view to keep it until 2028, depending on budgetary constraints.

In addition, the government is investing €5.5 billion into propping up transmission grid fees to lower power prices.

In practice, the support for industry amounts to subsidies upwards of €2 billion per year – a far cry from the initial proposal that would have seen initial flows of around €6 billion.

“With these measures, we are now creating an electricity price bridge for particularly energy-intensive industry and the manufacturing sector for the coming years,” said Habeck.

The share price of global chemical giant BASF jumped by 3.7% following the announcement. Wacker Chemie’s share price jumped 5.7%.

Cheers from industry associations

The announcement was hailed by industry association BDI, which described it as “an important step towards greater competitiveness” that will bring “urgently needed relief for companies”.

Utility association BDEW stressed that the “very significant reduction in electricity tax is a logical step, as is the extension and expansion of electricity price compensation and the so-called super cap.” 

“The relief for particularly large industrial electricity consumers with the help of extended electricity price compensation is a suitable compromise,” said machine producers at the VDMA.

Lion Hirth, an energy economist at the Hertie School, was also positive, calling the agreement “actually quite reasonable.”

Liberal politicians were quick to score the compromise in their favour. “The electricity price package is a great signal for the future of Germany as a business location,” said Lukas Köhler, deputy chief of the FDP. 

They may have a point – slashing taxes and grid fees was their initial proposal. 

But conservatives quickly attacked the deal. Habeck “failed miserably with his [original] concept of a bridge electricity price,” said the CDU’s Jens Spahn, formerly minister of health and today the party’s leading voice on energy policy. Now, energy-intensive industry will be ready to abandon the country, he added.

SMEs win, households lose

The single-biggest winner are Germany’s small and medium-sized enterprises, who were initially not going to get any state support. The slashed tax will reduce their cost burden. 

Berlin showed that it is “taking the concerns of the many small and medium-sized companies just as seriously as those of large-scale industry,” Köhler opined.

Yet, households, who would have been the primary beneficiary of the FDP’s initial proposal to slash electricity taxes for all, are left empty-handed.

[Edited by Alice Taylor and Frédéric Simon]

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