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Price shock

February 14, 2011

Electricity costs are on the rise in Germany. They could threaten the international competitiveness of German companies and push them to move their operations abroad.

Cement factory
Heavy industry is being hit hard by energy price hikesImage: picture-alliance/dpa

Germany's energy intensive manufacturing sectors, such as chemicals and building materials, will be burdened this year with an increase in energy costs of up to 13 percent. Electricity prices in the country have more than doubled in the last 10 years.

"You can't make up for the speed of the price increases by making energy savings," said Dieter Schäfer, chairman of the Munich-based BAU building fair. "It's a process that you can't win."

Although the German government plans to cap energy costs for industry for 2011 and 2012, Schäfer is keen to see an agreement for 2013 as well, so that businesses can plan ahead.

Schäfer also warned that the German government should be careful not to overburden industry with renewable energy costs.

Remaining competitive

"Because it's pretty much unique to Germany - the consequences of the rising energy costs in general mean that big energy users like copper producers or aluminum manufacturers (could) leave Germany and head to Eastern Europe and that's not what we want," Schäfer told Deutsche Welle.

The hefty electricity bills are due partly to commodities price hikes and partly to government efforts to subsidize renewable energy. The subsidy costs are now being passed on to users in the form of the Renewable Energy Law (EEG) apportionment, which has risen from 20.47 euros to 35.30 euros per megawatt hour in 2011.

Wolfgang Bauer CEO of Dyckerhoff
CEO Bauer feels his business is at the mercy of energy suppliersImage: DW

Schäfer questioned whether the government's current energy policy is economically viable. There's an immense doubling-up of costs, he said, because power stations have to be permanently on stand-by for cloudy windless days when renewable energy sources can't deliver.

"This is an immense cost factor …I think that the current policies aren't sustainable in Germany," he said.

Schäfer also warned of the environmental consequences of making electricity too expensive.

"The more expensive electricity becomes, the more profitable it becomes to use gas and oil, but I think that's the wrong way to go," he said.

Schäfer wants the government to ensure that German businesses can remain competitive within the European market.

Driven out of the market

"Germany's not an island," he said. "We need to ensure that our energy policy isn't short-sighted. If the energy policies in countries around us are totally different, we'll be driven out of the market by rising costs. The German government has to understand this."

Wolfgang Bauer, CEO of Dyckerhoff, which uses 560 gigawatts of electricity each year to grind stones and manufacture cement and concrete, expects the manufacturer's total production costs to increase by almost 3 percent due to higher electricity prices.

Energy costs may mean pricier construction materialsImage: AP

"If the electricity costs continue to rise, then the cost of cement will also have to go up," Bauer told Deutsche Welle.

High electricity costs are forcing companies in Germany to save energy and develop technologies such as combined heat and power, a solution that reuses waste heat for other purposes like heating water.

Over the past few years, Bauer has been forced to reduce personnel and maintenance costs because of rising electricity prices. Ten years ago, he said, electricity accounted for only 10 percent of the Dyckerhoff's manufacturing costs: Today, it's 17 percent.

The cement industry also requires a significant amount of energy to melt limestone. But energy costs in that sector are controllable, according to Bauer, because producers can use cheap materials like old tires and industrial waste to burn as fuel.

'At the mercy of energy providers'

"In contrast to the fuels, which we can replace, electricity use is very difficult to influence and electricity prices are also very difficult to influence," he said. "We're basically at the mercy of the energy providers."

Because electricity is around 25 percent cheaper in France and nearly 50 percent less expensive in Estonia, German companies like Dyckerhoff could be tempted to shift their operations out of the country.

"German electricity costs are relatively high in comparison to other countries, especially when you look at other countries like France and Eastern European countries," Hans Dieter Karl, an energy analyst at the Ifo Institute for Economic Research in Munich, told Deutsche Welle. "Germany has one of the highest electricity prices."

That said, Karl doesn't expect any companies to leave the country until they've made a long-term assessment about the best location for their business operations.

Author: Natalia Dannenberg
Editor: John Blau