Germany Slams Door on Power Price Relief as Industries Warn of Exodus

The German government has refused to subsidize high electricity costs for its industries, despite calls from Economy Minister Robert Habeck to do so. Habeck believes that steep energy bills are hurting the competitiveness of companies in Europe’s largest economy. Leaders of major industry lobbies, such as Markus Steilemann of the chemical industry lobby VCI and Tanja Gönner of the leading business lobby BDI, have expressed concern that the government is not responding to the crisis. They fear that companies may relocate elsewhere if the issue is not addressed. 

Chancellor Olaf Scholz, however, argues that the government is already taking steps to help industry, with a €7 billion corporate tax relief package. While he acknowledges that affordable energy is an ongoing concern, he notes that the government has spent billions on price subsidies since Russia invaded Ukraine, and that prices are now falling as import costs decrease. 

Germany was hit hard by Moscow’s attack and gas cutoffs, leading to skyrocketing prices. The government responded quickly by building LNG terminals and securing emergency supplies from the US and Middle East, which helped to keep homes and factories warm during the winter. However, energy costs remain high, contributing to economic stagnation as growth has slowed in recent quarters. 

Habeck proposed subsidized electricity in May, offering big industrial users a fixed rate of €0.06 per kilowatt hour until 2030, which is lower than the €0.089 spot price. However, with US energy prices far cheaper thanks to Biden’s subsidies, German firms are considering relocation. 

Scholz argues that renewable expansion and grid upgrades are the best long-term solution and that Germany aims for 80% green power by 2030. However, VCI insists that short-term subsidies are “essential to prevent deindustrialization” until ample cheap renewables are available. A German Chamber of Commerce survey found that twice as many firms now favor foreign over domestic investment, which is a concerning trend. 

Scholz’s rejection of Habeck’s proposal may cause tension with his Social Democratic coalition partners, who recently backed a €0.05/kWh subsidy. However, the Free Democrats, who are also in the coalition, firmly oppose the idea, arguing that it would distort competition between large companies and small businesses. Finance Minister Christian Lindner contends that taxpayers and companies, including bakers, traders, and small and medium-sized businesses, should not have to pay for cheaper power for a select few companies.

Related Article