Federal Economics Minister Robert Habeck of the Green Party wants to help domestic industry by proposing a plan to reduce energy costs. Many companies are struggling due to the sharp rise in energy prices. According to Habeck’s plan, these companies should in future not have to pay more than six cents per kilowatt hour consumed for 80 per cent of their energy consumption. The state would take over the difference to the normal market price. However, only energy-intensive companies would benefit from this regulation. However, these concessionary energy prices would only apply until 2030. Habeck hopes that from that point on, the increased use of environmentally friendly electricity will lead to cheaper electricity. (Welt, 27.05.2023)
Habeck’s plan has raised concerns among some economists, who believe that experimenting with free pricing mechanisms in markets is rarely a good idea. Nevertheless, parts of the industry are relieved at the prospect of capping electricity prices. There is agreement that such a measure could help, but there are different opinions on how it should be implemented. The President of the DIHK, Peter Adrian, has voiced his concerns and stressed that the proposal from the Federal Ministry of Economics would only help a very small number of companies – provided that the electricity rebate does not come with many conditions and restrictions. He also points out that electricity prices, which are above average in international comparison, are a burden on the entire breadth of our economy and represent a permanent location problem.
The German Chamber of Industry and Commerce (DIHK) has developed its own proposal as an alternative to Habeck’s plan, called “StromPartnerschaften”. The DIHK represents around three million companies, almost 80 percent of which are small and medium-sized enterprises. The concept provides for the state to first “take over taxes, apportionments and charges as completely as possible” or “reduce them as much as possible” for these companies. If there are nevertheless hardship cases, additional measures should be taken. DIHK President Adrian emphasises that we have to say goodbye to the long-standing political conviction that energy must basically be expensive and should be saved. By lowering the electricity tax and other levies, companies and households could be relieved by a total of ten billion euros.
DIHK plan to promote long-term electricity supply contracts: Electricity partnership as a motor for investment and price stability
The main idea of the “electricity partnerships” is to promote long-term electricity supply contracts between operators of renewable energy plants and commercial electricity consumers. These contracts, also known as power purchase agreements (PPAs) or direct electricity supply contracts, are designed to enable, for example, a wind turbine operator from the North Sea to enter into a long-term partnership with an industrial company in the South. This results in advantages for both sides as well as for the overall economy.
According to the plan, state investment subsidies would be granted for wind or solar farms that supply electricity to individual industrial consumers at a fixed price. This would lower the price of electricity. This measure would provide producers of green electricity with a clear perspective and investment security, while at the same time guaranteeing price stability for industrial consumers for a large part of their electricity consumption. Such an investment subsidy would have a rapid effect and create an immediate incentive for investment. The business impact would be clear and predictable.
Habeck’s plan also provides for the promotion of PPA contracts, but through guarantees. The DIHK believes that more should be done, as an investment subsidy would cost less than a government cap on industrial electricity prices in general. The Chamber argues that this would lower electricity prices for consumers, increase company profits and thus also increase tax revenues. However, PPA direct supply contracts, which are demanded by the business community, also have disadvantages in the view of experts. If more and more green electricity is sold at fixed prices exclusively to industrial customers, the liquidity on the futures market on the exchange will decrease. This affects so-called “futures” or forward contracts, with which companies and municipal utilities have so far purchased electricity in advance. Fewer green kilowatt hours then remain for such transactions. Therefore, the DIHK’s proposal could also lead to distribution debates.
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