Billions in aid for corporations?
What speaks for the industrial electricity price – and what against it
By Max Borowski
08/28/2023 3:52 p.m
Germany’s industry is asking for help given the high electricity costs in Germany. The idea of new subsidies in the form of an industrial electricity price splits politicians and business representatives. ntv.de explains the most important arguments in the billion dollar dispute.
Some plants, such as chemical companies, are already at a standstill. Many, especially international companies with energy-intensive production processes are thinking aloud about relocating locations abroad or decide straight away to invest outside of Germany. A main reason that is mentioned again and again: the high price of electricity in Germany. Although large industrial customers pay less for their electricity than private customers or smaller commercial enterprises, the costs for electricity in Germany are higher for them than in almost all other countries.
A state-subsidized industrial electricity price could counteract the impending end for entire branches of industry. Federal Minister of Economics Robert Habeck has submitted a proposal for this, as has the SPD parliamentary group in the Bundestag. The idea meets with approval in parts of business and politics, but also with vehement opposition.
What speaks against the industrial electricity price:
According to the Ministry of Economic Affairs, the subsidy could cost the state 30 billion euros. However, a final amount can hardly be quantified. The concepts currently available envisage that the federal government reimburses the difference between a price of five or six cents per kilowatt hour (net) and the price of electricity on the exchange, which is currently just under nine cents. Depending on the design and development of the electricity exchange, the costs could vary greatly. A lot of money at a time when Finance Minister Christian Lindner is insisting on compliance with the debt brake and setting strict savings targets for his fellow ministers.
According to Habeck’s concept, around 2,000 companies could receive the industrial electricity price. The remaining millions of electricity customers not only got nothing, but would be charged twice as a result. On the one hand, they have to pay for the costs with their taxes. On the other hand, the price of electricity is likely to rise for them if the demand from large companies increases in view of their reduced costs. The electricity supply will not increase as a result of the subsidy.
Economists warn that subsidized electricity creates a false incentive for industry. Massive support for energy-intensive industries harbors the risk that the necessary adjustment processes will not take place. Then activities with public funds would be maintained that are no longer internationally competitive, argues the scientific advisory board of the Ministry of Finance. Even if the price of electricity falls significantly in the future due to the expansion of renewable energies, it is likely to be higher in Germany in the long term than in other countries that also invest in wind and solar energy, but have advantages in doing so, for example through more solar radiation. However, Monika Schnitzer, head of economics, warned that one should not subsidize a permanent location advantage.
What speaks for the industrial electricity price:
Proponents emphasize that it should by no means be a permanent subsidy. The SPD concept provides for an initial limitation of five years. At the same time, the supply of electricity must be expanded through the expansion of renewable energies. Since the electricity should then generally become cheaper again, so the assumption, it is only a matter of a “bridging subsidy” for production plants, which could also be competitive again in Germany in a few years.
Economist Jens Südekum from the University of Düsseldorf argues that the industrial electricity price could even be a “transformation accelerator”. Many companies that have previously relied on fossil fuels due to the high price of electricity could be encouraged to switch to electricity that will come from renewable energy sources in the future.
Industry representatives and economic politicians also emphasize the importance of branches of industry such as the chemical industry for the economy as a whole. “We have to remain independent when it comes to important goods and we mustn’t hand ourselves over to countries like Russia and China,” argues Michael Hüther, head of the German Economic Institute.