Industrial electricity price

Summary of the energate Talk: An industrial electricity price with tight limits and far-reaching questions

After intensive negotiations at the European level, the German industrial electricity price is within reach again. But the framework set by the EU Commission is tight and raises decisive questions. In a talk hosted by energate, experts from industry, trading, law and business associations discussed the opportunities, risks and necessary structural reforms for Germany as a business location. Participants were:

• Dr. Niclas Wenz – Head of the Electricity Market and Renewable Energy Unit, German Chambers of Industry and Commerce (DIHK)
• Sandra Talhof – Partner and attorney for energy law, Ziska & Talhof Rechtsanwälte
• Anne Köhler – Managing Director, Energy Traders Deutschland
• Jan Christoph Schaffrath – Managing Director Energy and Climate Policy (DIE PAPIERINDUSTRIE)
• Elias Küpper – Founder & CEO, RIZM

Moderation:

• Christian Seelos, energate
• Rouben Bathke, energate

The EU's tight framework: an instrument for the few?

There was agreement in the panel that the now-possible industrial electricity price is far removed from the original idea of an all-encompassing price of 4 to 6 cents per kilowatt-hour. The new EU state aid framework (CISAF) sets strict conditions: aid is limited to a maximum of 50% of electricity consumption, the price may not be subsidized below 50 euros per megawatt-hour, and 50% of the aid received must be reinvested.

This leads to significantly less relief than industry had hoped for. In addition, the circle of potential recipients is strongly restricted. Above all, the particularly energy-intensive sectors that already benefit from the electricity price compensation will probably not be additionally favored. The instrument thus targets a specific group of companies that are energy-intensive but do not belong to the top category. For the broad mid-sized sector and many core industries, the industrial electricity price thus remains out of reach.

Risk of market distortions and unintended consequences

A central point of criticism in the discussion was the potential negative impact on the electricity market. Energy traders warned that a state-subsidized price reduces the incentive for companies to hedge themselves on the market via forward contracts or power purchase agreements (PPAs). This would reduce liquidity on the trading markets and increase transaction costs for all other players.

Furthermore, the short-term nature of the measure was identified as a risk. A "bridge electricity price" limited until 2030 could become a brake on urgently needed long-term investments in flexibility and decarbonization. If companies rely on the subsidy instead of adapting their processes to the new, volatile energy world, a rude awakening looms once the aid expires. The subsidy must therefore be designed intelligently in order to support the transition in a targeted way and not create counterproductive incentives that block the path into the future.

The call for structural and smarter reforms

The experts agreed that the industrial electricity price can at best be a bridge. What is decisive is what waits at the other end of this bridge. Instead of isolated subsidies, a sustainable solution requires far-reaching structural reforms. The most important starting points were:

• Expand supply in a targeted way: more generation capacity must be built to widen the periods of low electricity prices and reduce price peaks. Both the expansion of renewable energy and the use of existing industrial CHP plants help here.
• Reduce system costs: noticeable relief for the entire economy could be achieved by lowering state-induced price components such as taxes, levies and surcharges.
• Strengthen market mechanisms: instead of intervening in the market, policymakers should strengthen confidence in price signals and improve the framework for market-based instruments such as PPAs.
• Modernize grid fees: the current grid fee system often sets the wrong incentives. The call was to reverse the logic: instead of rewarding inflexible behavior, a modern system must promote flexibility. Companies that adapt their consumption to the grid situation and thereby stabilize the system should benefit from it instead of being penalized.

Conclusion

The industrial electricity price in its current form is a sharp instrument with limited effect and considerable risks for market efficiency. The discussion made clear that the focus must not lie on subsidies alone. The key to competitive energy prices and a strong industrial location lies in a package of bold structural reforms that increase electricity supply, lower the cost base and, above all, intelligently promote and reward flexibility in the energy system.

There is also an article about the energate talk in the energate-messenger.