Germany Seeks Power Price Cut in €30 Billion Aid to Industry

(Bloomberg) -- Germany is weighing a reduced power price of 6 cents per kilowatt-hour or less for some energy-intensive industries to ease costs after last year’s crisis shook the manufacturing-heavy economy.

The measure will cost between €25 billion and €30 billion and last until 2030, according to a working paper released by the Economy Ministry on Friday. It argued the measure is needed as a lifeline to certain sectors as well as to preserve competitiveness, with power prices still about double pre-crisis levels.

Volkswagen AG Chief Executive Officer Oliver Blume said the proposals “point in the right direction.”

“It is a matter of reinforcing the competitive strength of our country and, in addition, the attractiveness of Germany as an industrial location,” Blume said in an emailed statement.

Europe’s industry has been slow to recover from last year’s energy crunch, even after costs plunged from the historic highs reached over the summer. German power prices for next year — a benchmark for Europe — are currently more than twice as high as the proposed cap.

Companies qualifying for the subsidy would be reimbursed for electricity costs above 6 cents per kilowatt-hour. Because the level is based on an average of exchange-traded prices, it can go down further, Economy Minister Robert Habeck said. 

It’s a huge discount. To compare, small and medium-sized firms in Germany pay around 27 cents per kilowatt-hour, according to recent data from energy lobby group BDEW. Large energy-intensive companies typically don’t publish their exact pricing systems.

Shares in German chemical manufacturers in particular took a big leg up on the news, boosting the Stoxx 600 Chemicals subindex by more than 1% in less than 15 minutes.

“This is an important signal for our industry,” said Wolfgang Grosse Entrup, head of the German Chemical Industry Association. “The industrial electricity price helps us to secure production and industrial value creation and to master the transformation to climate neutrality even better. All of Germany and Europe will benefit from this.”

The Economy Ministry suggested financing the tool with an off-budget fund created to help companies during the pandemic, which was later repurposed during the energy crisis.

Finance Minister Christian Lindner has opposed such a step and wants to use the country’s climate and transformation fund instead, which is already in deficit. That suggests the proposal may still face political pushback. 

Last year, Germany’s government introduced temporary subsidies on gas and power, but they will be phased out by April 2024 at the latest.

The Economy Ministry’s proposal includes a two-step approach that aims to lower electricity prices after 2030 — when the country aims to derive 80% of its power from renewable sources — as well as a bridge price until that point:

• State-subsidized power price should be available for a limited circle of energy-intensive firms from sectors such as chemistry, steel, metal, glass or paper production
• Subsidy restricted to 80% of power consumption
• So-called contracts for difference to help pass on cheaper renewable power costs, and should be used for offshore wind parks; legal changes should also allow CfDs for onshore wind and solar

Chancellor Olaf Scholz this week called for a “concrete discussion about cheaper electricity for industry” that would be possible without those prices “being permanently subsidized,” he told Rhein-Zeitung. Nadine Kalwey, spokeswoman for Lindner said at a press conference on Friday that “there are no financial resources for such a project” when asked about the Economy Ministry’s proposal.

(Updates with Volkswagen CEO’s comments in third paragraph.)

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