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Germany considers electricity price cap to support industry

May 5, 2023

Economy Minister Robert Habeck wants to support German industry for years to come with lower electricity prices. His electricity price cap proposal is intended to ensure that energy-intensive companies remain in Germany.

Economy Minister Robert Habeck
Robert Habeck says the assistance is necessary to ensure that 'critical branches of industry' remain in GermanyImage: Kay Nietfeld/dpa/picture alliance

Germany's Economy Minister Robert Habeck on Friday unveiled plans to cap electricity prices for energy-intensive industries to protect the sector from sharp cost increases.

According to the plan, the upper limit of €0.06 (roughly $0.07) per kilowatt hour (KWh) should apply until 2030.

It should cover at least 80% of the electricity consumption of a clearly defined group of German companies from energy-intensive industries such as chemicals, steel and glass manufacturing.

How much will the price cap cost?

The electricity price for non-residential customers averaged €0.18 without taxes in the second half of 2022, according to the German statistics agency Destatis.

Beneficiaries would see the difference between the market price for electricity and the cap reimbursed, with the total cost of the project running to between €25 billion and €30 billion, according to the proposal.

Habeck, who represents the Greens in the government, is perhaps counterintuitively recommending that the taxpayer subsidize some of Germany's biggest polluters. He described the proposal as a necessary long-term "bridge" solution until renewable capacity is expanded and prices fall. Otherwise, the government argues, there's a risk that the major employers and sometimes systemically important industries relocate from the country. 

Energy costs rose sharply in the wake of the Russian invasion of Ukraine, as Moscow dwindled critical gas supplies to Europe.

Energy Crisis: Who's to blame?

Plan is aimed at 'critical branches of industry'

Germany's parliament approved a €200-billion energy relief plan in November to protect consumers and businesses from sky-high energy costs through April 2024. The government plans to pay for the scheme using these funds.

The measures had "stabilized energy-intensive industry but we must not squander this achievement," Habeck said at a press conference.

The new cap would ensure that "critical branches of industry" remained based in Germany and Europe, Habeck said.

The VCI chemicals lobby has already welcomed the price cap in a statement as a "clear game-changer for our international competitiveness."

Who is critical of the proposal?

However, the proposal immediately met with criticism, including within the German governing coalition, a three-way alliance between the Social Democrats, Greens and the business-friendly FDP.

"I take a very critical view of the industrial electricity price," Finance Minister Christian Lindner wrote in the Handelsblatt daily earlier this week.

The idea was "economically unwise", said Lindner, whose party the FDP has championed Germany's balanced-budget orthodoxy.

Habeck's proposals could also raise concerns in Brussels that Germany is unfairly subsidizing its industry.

The ministry said it would "enter into a constructive discussion with the European Commission on all competition-related issues," while calling for a broader "European strategy to strengthen energy intensive industries."

dh/msh (AFP, dpa, Reuters)