The nation’s officials in the industry raised the alarm ahead of the general election in Germany in February. If nothing was done, they warned of business closures and business relocations worldwide and called on the new German government to take action to combat rising energy costs. Their issues appear to have been shared by the fresh coalition government led by Chancellor Friedrich Merz and the traditional CDU/CSU group alliance. It is planning major relief measures after only a few weeks in office, but some professionals are cautioning of potential drawbacks. How much does the German market pay for energy? It’s difficult to pin down a single dollar because the amount of current tax relief for energy prices varies depending on the size and industry. Germany‘s industrial electricity prices were close to the European average in 2022, according to a study by the Bavarian Business Association (vbw ) based in Munich. Nonetheless, the impact of Russia’s massive conquest of Ukraine in February 2022 affected electricity markets, making comparisons difficult to make year-to-year. According to recent EU data, Germany ranks second in the group among non-household consumers for electricity prices, a group that includes both public institutions like schools and government buildings. As a result, it’s difficult to speculate about the effects on business in particular. Germany is in the middle of global comparisons when it comes to the retail electricity price, according to Bruno Burger, an energy specialist at the Fraunhofer Institute for Solar Energy Systems, in a recent interview with the European regular Frankfurter Rundschau. One thing is clear, however, that businesses in the US and China pay substantially less. According to the German ifo Institute think tank, industrial electricity prices were in the US at around 7 euro cents ( roughly 8 cents ) per kilowatt-hour in 2023, and China at around 8 cents, according to vbw data. Business firms in Germany, however, are paid approximately 20 cents, according to supplying. Apparently, the coalition government’s plans for Berlin include broad-based reduction measures to lower professional electricity prices. The general cost, plus an energy taxes, surcharges, and grid fees, make up the electricity price in Germany. Taxes are used to finance certain government initiatives, while network charges are charges for using the power system. By lowering the electric revenue to the EU-minimum and cutting fees and network fees, Brussels is now planning to lower the energy cost for businesses by 5 cents per kilowatt-hour. The state also wants to expand and increase the energy cost payment system, which reimburses energy-intensive industries for costs brought on by CO2 pricing. To reduce emissions, Germany and the EU use fossil fuels for a price that includes CO2. Is this strategy wise to pursue? The Cologne-based German Economic Institute ( IW)’s Andreas Fischer, an expert on energy and climate policy, told DW that” the broad-based relief is positive from the consumer’s perspective,” adding that Max Jankowsky, the CEO of Lössnitz Foundry and president of the Chemnitz Chamber of Industry and Commerce, has acknowledged the urgency of the need to lower electricity prices. According to Swantje Fiedler, scientific director of the Forum for Ecological-Social Market Economy,” a blanket reduction in electricity prices contradicts the needs of a system based on renewable energy.” She told DW that the German energy system would need incentives for energy storage and flexibility because renewable electricity is bound to fluctuate, with plentiful supply in the summer and sparse in the winter. According to IW expert Fischer,” At the same time, it is important to consider how flexible a company can be,” not all businesses could quickly adapt to changes in electricity supply or pricing. The benefits and drawbacks of less expensive electricity According to Leonhard Probst of the German Fraunhofer Institute for Solar Energy Systems in Freiburg, lower electricity prices may lessen incentives for businesses to use it more effectively. Probst, the Energy-Charts ‘ manager. The most comprehensive database for power generation in Germany, according to the platform, also stated that, on the other hand, cheaper electricity can make it easier to electrify industrial processes, which is ultimately better for the environment. The Lössnitz Foundry would serve as a prime example, as Max Jankowsky, the company’s CEO, has been considering switching from coke to an electric smelting furnace. However, he is currently being held back by high electricity costs:” It feels like running into a buzzsaw,” he said, referring to the danger of permanently high electricity prices. Will Brussels obstruct Berlin’s plan? Further relief is mentioned in the ruling party coalition agreement, which also includes energy-intensive businesses. Although some experts think that’s the intention, it’s still unclear whether this includes caps on wholesale electricity prices. Taxes and surcharges already account for only a small portion of the final electricity cost, as shown in price breakdowns. According to Fraunhofer scientist Probst, artificially lowering prices could backfire:” If electricity is in short supply but sold cheaply, scarcity intensifies and prices increase further,” he said. The German Chamber of Industry and Commerce ( DIHK), led by Sebastian Bolay, sees a new issue looming for the government. A price cap would obstruct market pricing, according to Bolay, and it would likely not be permitted by EU state aid regulations. Additionally, according to Probst, a price cap might be expensive for taxpayers because many businesses would “benefit unnecessarily” from energy costs because only a small portion of their value creation is made up of energy costs. ” Tailored measures make more sense,” according to Sweidler, who is persuaded that “targeted subsidies” are more effective than “general price reductions” and could include special electricity rates for the use of heat pumps. Jankowsky also calls for “tailored measures,” particularly those that support small and medium-sized businesses (SME’s ), noting that many of the existing subsidies don’t apply to them, which must be changed,” and it needs to happen quickly.”
