German government coalition has reached an agreement on a power price package aimed at alleviating the burden on energy-intensive industries

10 Nov, 2023

German government coalition has reached an agreement on a power price package aimed at alleviating the burden on energy-intensive industries

Germany's three-party government coalition has reached a substantial "power price package" valued in billions of euros over the next five years. The primary aim is to ease the pressure on manufacturing industries facing high power costs. This package involves a reduction in the electricity tax for at least two years, alongside extensions and expansions of existing subsidy schemes, as announced by the government.

Chancellor Olaf Scholz from the Social Democrats (SPD) highlighted, "Next year alone, relief worth up to 12 billion euros will be provided," emphasizing the agreement's role in offering companies planning security and reducing administrative burdens.

This agreement resolves a prolonged internal dispute within the coalition regarding strategies to support industry in the upcoming years. Economy Minister Robert Habeck of the Green Party initially proposed substantial subsidies to cap electricity prices for energy-intensive companies, facing resistance from the chancellor and the pro-business Free Democrats (FDP). Habeck emphasized the importance of finding a unified approach to support the competitiveness of industry, addressing businesses of varying scales.

These measures, agreed upon by key figures within the leading parties, encompass various significant elements:

Lowering the electricity tax for all manufacturing companies to the EU minimum by 2024/2025, a considerable reduction from the current rate of 1.537 ct/kWh, extending to 2026-2028 if the federal budget allows.
A five-year extension of a subsidy scheme compensating energy-intensive companies for parts of the CO2 costs within the EU Emissions Trading System (EU ETS), eliminating the rule restricting compensation.
Extending the "super cap" for five years, capping total CO2 emissions trading costs for roughly 90 highly energy-intensive companies, removing the base amount that was previously uncompensated.
State subsidies to manage the increase in grid fees in 2024 have already been decided.

Currently, industrial consumers in Germany experience a wide range of power prices, unlike a single unified rate. While households pay approximately 45 ct/KWh for electricity in 2023 (among the highest in Europe), energy-intensive companies benefit from various tax exemptions and pay significantly less.