Can low cost energy assist? – DW – 05/20/2025 | EUROtoday

Ahead of February’s normal election in Germany, the nation’s business leaders raised the alarm. They urged the brand new German authorities to do one thing towards excessive electrical energy costs and warned of enterprise closures and firms relocating overseas if nothing occurred.

Their considerations seem to have resonated with the brand new coalition authorities of the conservative CDU/CSU get together alliance and the Social Democrats (SPD) headed by Chancellor Friedrich Merz.

After only some weeks in workplace, it’s planning vital aid measures, however some consultants are warning of potential downsides.

How excessive are electrical energy costs for German business?

It’s exhausting to pinpoint a single determine, as current aid from electrical energy prices varies relying on firm dimension and sector.

According to a research by the Bavarian Business Association (vbw) primarily based in Munich, Germany’s industrial electrical energy costs had been across the European common in 2022. However, the impression of Russia’s full-scale invasion of Ukraine in February 2022 affected vitality markets, making year-to-year comparisons troublesome.

Recent EU information exhibits that Germany ranks third within the bloc concerning electrical energy costs for non-household customers — a class that features not solely industries but additionally public establishments like colleges and authorities places of work, thus making it exhausting to attract conclusions concerning the impression on business particularly.

When it involves the wholesale electrical energy value — earlier than taxes and costs — Germany is in the midst of worldwide comparisons, stated Bruno Burger, vitality knowledgeable on the Fraunhofer Institute for Solar Energy Systems, whereas chatting with the German day by day Frankfurter Rundschau lately.

Germany’s plan to maintain up with US and China

One factor is evident, although, firms within the US and China pay considerably much less.

In 2023, industrial electrical energy costs had been round 7 euro cents (round 8 cents) per kilowatt-hour within the US, in line with the German ifo Institute suppose tank, and about 8 cents in China, vbw information present. In Germany, nevertheless, industrial corporations pay round 20 cents, ifo says.

Plans by the coalition authorities in Berlin reportedly embrace broad-based aid measures to scale back industrial electrical energy costs.

In Germany, the electrical energy value is made up of the wholesale value, plus an electrical energy tax, surcharges, and grid charges. Grid charges are fees for utilizing the facility community, whereas surcharges fund particular authorities initiatives.

Berlin is now planning to scale back the electrical energy value by 5 cents per kilowatt-hour for companies by reducing the electrical energy tax to the EU minimal and reducing surcharges and grid charges.

The authorities additionally needs to increase and broaden the electrical energy value compensation program, which reimburses energy-intensive industries for prices arising from CO2 pricing. The CO2 value is utilized to using fossil fuels in Germany and the EU to discourage emissions.

Is this plan a good suggestion?

Andreas Fischer, vitality and local weather coverage knowledgeable on the Cologne-based German Economic Institute (IW), instructed DW that “from the consumer’s perspective, the broad-based relief is positive.”

Max Jankowsky, CEO of Lössnitz Foundry and president of the Chemnitz Chamber of Industry and Commerce, agrees, telling DW in an announcement that the urgency of lowering electrical energy costs for business has been “recognized.”

But the plan can be drawing criticism.

“A blanket reduction in electricity prices contradicts the needs of a system based on renewable energy,” says Swantje Fiedler, scientific director on the Forum for Ecological-Social Market Economy. Rather, the German vitality system would want incentives for vitality storage and suppleness, she instructed DW, as a result of renewable electrical energy provide is certain to fluctuate, with plentiful provide in summer season and scarce in winter.

“At the same time, it is important to consider how flexible a company can be,” says IW knowledgeable Fischer, as not all corporations might rapidly adapt to adjustments in electrical energy provide or pricing.

The professionals and cons of cheaper electrical energy

Leonhard Probst, from the Germany-based Fraunhofer Institute for Solar Energy Systems in Freiburg, believes decrease electrical energy costs could cut back incentives for firms to make use of electrical energy extra effectively.

Probst, who manages the Energy-Charts.de platform — essentially the most complete database for energy era in Germany — additionally stated that, however, cheaper electrical energy could make it simpler to affect industrial processes, which is healthier for the atmosphere in the long term.

The Lössnitz Foundry can be such a living proof, as the corporate’s CEO Max Jankowsky has been planning to modify from coke to an electrical smelting furnace. So far, nevertheless, excessive energy costs are holding him again: “It feels like running into a buzzsaw,” he stated, referring to the chance of completely excessive electrical energy costs.

Will Brussels thwart Berlin’s plan?

The coalition settlement of Germany’s ruling events additionally mentions additional aid for energy-intensive firms. It stays unclear whether or not this consists of capping the wholesale electrical energy value, although some consultants consider that is the intent.

As proven in value breakdowns, taxes and surcharges already account for under a small portion of the ultimate electrical energy price.

Fraunhofer scientist Probst warns that artificially reducing costs might backfire: “If electricity is in short supply but sold cheaply, scarcity intensifies and prices rise further,” he argued.

Sebastian Bolay, head of vitality, atmosphere and business on the German Chamber of Industry and Commerce (DIHK), sees one other drawback looming for the federal government on the horizon.

“A price cap would interfere with market pricing and would likely not be permissible under EU state aid rules,” Bolay instructed DW.

Moreover, a value cap is also costly for taxpayers, Probst added, as many firms that do not want aid, as a result of vitality prices make up solely a small a part of their worth creation, would “benefit unnecessarily.”

‘Tailored measures’ make extra sense

Swantje Fiedler is satisfied {that a} sooner rollout of renewable vitality in Germany will “lower prices in the long term.”

In the meantime, stated Probst, “targeted subsidies” are simpler than blanket value reductions, and will embrace particular electrical energy charges for using warmth pumps.

Jankowsky can be calling for what he referred to as “tailored measures,” particularly to assist small and medium-sized companies (SME’s), noting that many current subsidies do not apply to them, which should be modified, “and it needs to happen fast.”

This article was initially written in German.