When Chancellor candidate Olaf Scholz visited a large cement plant in Rüdersdorf near Berlin in August 2021, the message he wanted to send with his visit was clear. First: The SPD and industry are coming together again after years of distance. And secondly: Nowhere are there such huge gains for the climate and German CO₂-Balance as in a successful conversion of the steel, chemical, cement or ceramics industry from coke and gas to hydrogen and green electricity.
Scholz presented himself as a doer with a yellow vest and a white helmet, presented himself as the climate chancellor who wants to keep industry in the country despite one of the greatest processes of change in the past hundred years. In Rüdersdorf, the CO released by crushing the limestone₂ separated and processed into synthetic fuels, for example for airplanes, with the help of hydrogen and electrolysis. In the steel industry, instead of coke and gas, electrified blast furnaces are to be used that draw electricity from renewable energies. So it takes a lot more power. According to Scholz in Rüdersdorf, the chemical industry alone will consume as much electricity in 2050 as the whole of Germany does today.
Nothing has changed in this situation since then – except that the price of electricity has exploded as a result of the Russian war of aggression against Ukraine. Many energy-intensive companies are therefore under massive pressure and are now demanding the political support that the then candidate and current chancellor had promised. If that doesn’t happen, so the more or less clear warning, there is a risk that large numbers of energy-intensive companies in particular will turn their backs on Germany and instead set up factories in countries with significantly lower energy costs, for example in the USA. Hundreds of thousands of jobs are at stake.
An industrial electricity price, as demanded by the SPD, would cost billions
The debate has long since reached Berlin, and industry and trade union officials, economists, the opposition and Berlin coalition members are now outdoing each other with demands and suggestions as to how the federal government could subsidize the still high electricity prices. The SPD, which demands a fixed “industrial electricity price” of four to six cents, is the most aggressive. Specifically: If an energy-intensive company has to pay 26 cents for a kilowatt hour on the market, as has been the case on average in the course of 2023, it would receive a reimbursement of a good 20 cents/kWh from the state from 2024 onwards.
That would cost the federal government billions a year – money that, according to the SPD, does not have to be laboriously found, but is already there: in the so-called Economic Stabilization Fund (WSF). “During the crisis, we made 200 billion euros available to finance the gas and electricity price brake and to support companies that got into trouble,” SPD leader Lars Klingbeil told the Süddeutsche Zeitung. “For me, an industrial electricity price starts right here. It could be financed from the Economic and Stabilization Fund.” According to the embassy, without such subsidies, the promise of making Germany climate-neutral by 2045 and maintaining it as a strong business location is in jeopardy.
“We still have to bridge a few years before industry can run completely on cheap, climate-friendly electricity,” says Klingbeil. He envisages a period of ten to 15 years. Energy-intensive companies are already paying a maximum of 13 cents for 70 percent of their consumption as part of the electricity price brake. However, the regulation expires at the end of 2023, so companies and consumers would then have to supply themselves with energy again at market conditions, as of now. An expensive affair, especially for private households, which have had to shell out an average of 46 cents per kilowatt hour of electricity over the course of the year to date. However, prices have recently fallen sharply.
However, this slight relaxation is not enough for the SPD, Greens and FDP, so they want to do more for 2024 – albeit with partially fundamentally contradictory concepts. Somewhat close to the SPD are the Greens, who are also in principle in favor of making cheap electricity available to industry – albeit in a different way than the larger coalition partner. They want to ensure that companies have permanent and reliable access to cheap wind power, for example, the price of which could be secured by contracts for difference. To put it simply: If the electricity costs the company more in practice than specified when the contract was concluded, the state will inject money. If it is cheaper, which can easily be the case on windy days, the companies reimburse the federal government for the difference.
The Ministry of Economics is currently working on the finer points of such a model, although it is already clear that no matter what the concept looks like in the end, it will still be a few years before it can be implemented. The Greens therefore also need an interim solution à la SPD, because waiting, Economics Minister Robert Habeck has already made it clear, is not an option: the state will lose money if it caps prices, said the Vice Chancellor recently. “But if we don’t cap them, we may lose the industries of the future.”
“Expensive subsidies are the wrong way,” says the FDP
The FDP remains – and this is where the problems begin for the coalition once again. The liberals also emphasize that “energy must remain affordable”. But, according to party leader Christian Lindner: “Expensive subsidies are the wrong way.” An industrial electricity price is “unfair in terms of distribution policy, economically inefficient and difficult to implement in practice”. In his second capacity as Federal Minister of Finance, Lindner can now have no interest in spending billions on state aid. However, he has a few arguments on his side that even FDP critics cannot simply dismiss out of hand. So it is hardly possible to clearly define who is part of the energy-intensive industry – in other words, who would receive subsidies and who would not. Energy-intensive companies would also no longer have any incentive to save electricity. According to Lindner, service providers who also consume a lot of electricity, such as data centers, would also have to be involved.
He therefore proposes the introduction of a premium for climate-friendly investments for all companies – as well as a reduction in corporate taxes across the board. The SPD and the Greens, in turn, reject this, while Lindner simultaneously blocks any access to the WSF: “A reallocation of funds from the Economic and Energy Stabilization Fund, which was created strictly earmarked in view of the Russian war of aggression, is ruled out,” said the minister this week in the Handelsblatt.
Not only politicians disagree, but also the economy itself. Family entrepreneurs, for example, are already up in arms about a possible preference for large industrial groups. “What at first glance promises relief from the high energy prices turns out to be a huge distortion of competition to the detriment of medium-sized companies,” said Marie-Christine Ostermann, President of the family business, with a view to the industry electricity price debate. “It’s absurd for the state to first burden companies with more and more burdens and then to generously subsidize them again.” Trade and crafts also fear that they may end up being among the big losers in an industrial electricity price.
Wolfgang Weber, CEO of the Association of the Electrical and Digital Industry (ZVEI), says that the price of electricity is an important location factor. “The current price is uncompetitive and must be lower.” However, an industrial electricity price falls short for Weber. The electricity price must be lowered for all consumption groups and consistently relieved of taxes and duties. Specifically, the Association of the Electrical and Digital Industry is calling for the VAT rate to be reduced to seven percent.
Matthias Zelinger, climate and energy expert from the mechanical engineering association VDMA, does not want to express a clear no to a cap for industrial electricity prices. At the moment it’s still a bit like trying to nail pudding to the wall, he says. “We’re skeptical because a lot of things aren’t known yet.” Who and how, for example, can benefit from a capped price. It is said to be only a small circle of companies that are very energy-intensive and are suffering particularly badly from the high energy prices and whose competitiveness is at risk. “Mechanical engineering is mostly not included in this. Our companies would then be the ones who would have to pay the whole thing through allocations or higher taxes, because the subsidies have to be financed somehow.” Zelinger has serious doubts that such a cap can really be regulated fairly. “It has the potential to be very shaky and very expensive.” And the price of electricity is by no means the only location factor. Zelinger believes it is wrong to measure locations based solely on this. “A government cannot compensate for the pull effect of an Inflation Reduction Act.”