Electricity price subsidy could harm industry efficiency and competition – analysis

A planned scheme to subsidise electricity costs for energy-intensive industry risks hampering efficiency improvements and disproportionately benefiting large companies, said the Centre for European Economic Research (ZEW) in a policy brief. 

“In the long term, there is a risk that innovation will be slowed and Germany's competitiveness as a business location will weaken,” said co-author Kathrine von Graevenitz. Large businesses would have less incentive to become more efficient, while young and medium-sized companies would find it more difficult to compete without subsidies, the researcher said. 

The government has agreed to introduce electricity price subsidies for energy-intensive industry for three years (the “industry electricity price”), but the scheme has yet to be launched. A spokesperson from the economy ministry told Clean Energy Wire that the relevant regulation is still being finalised, before the European Commission could then approve it based on state aid rules. According to the current plan, the scheme would apply retroactively from January 2026, and companies could submit first applications in 2027, the ministry said.

However, ZEW argued that the system would mainly benefit established large-scale consumers. Smaller companies would face high administrative hurdles and would therefore be less likely to apply for the subsidies. ZEW proposed that the government instead focus on improving the conditions of Germany’s overall business environment, such as investments in infrastructure and digitalisation, as well as reducing bureaucracy. 

The economists’ proposals are in line with industry demands. The industry electricity price “is an attempt to help the industry at this point, and will certainly not be enough on its own to get us out of the crisis,” said Oliver Zander, director-general of the Federation of German Employers' Associations in the Metal and Electrical Engineering Industries (Gesamtmetall), in an interview with Funke Mediengruppe. The sector faces its biggest crisis in modern German history due to “excessively high energy costs, excessively high corporate taxes, excessively high social security contributions and too much bureaucracy,” he said. 

The electricity prices paid by industry are one of the most contentious aspects of Germany's energy transition and its economic impacts. There is no single power price for industrial consumers, but instead an exceptionally broad range of prices. Due to a complex system of taxes and levies, they depend on how much power companies need, when they need it, how they source it, whether they compete with rivals abroad, and many other factors.