Households left out in the cold as Germany set to lower companies’ power bills

Following new EU rules allowing electricity subsidies for energy-intensive companies, the German government is readying a corresponding programme to help industrial companies that commit to decarbonisation. In addition, companies are also set to benefit from lower electricity taxes – in contrast to households and minor businesses.

The EU unveiled new rules allowing power price subsidies “to enable member states to push forward the development of clean energy, industrial decarbonisation and clean technology.” Energy-intensive companies can get support if they are exposed to international competition, as long as they invest in decarbonisation.

Germany’s economy ministry welcomed the EU policy change. It said the EU had “incorporated proposals” from the German government, adding it now plans to table a concrete own proposal to “quickly introduce” an industry power price for energy-intensive companies. German companies will also benefit from tax cuts on their electricity consumption, according to the government’s budget plans, presented earlier this week.

But households’ and small firms’ hopes for additional power price relief were dashed, even though the parties forming the coalition government – chancellor Friedrich Merz’s conservative CDU/CSU alliance and the Social Democrats (SPD) - had pledged to reduce electricity prices for both households and companies by at least five cents per kilowatt hour, by using CO2 price revenues to cut the electricity tax to the European minimum, among other measures.

The German Confederation of Skilled Crafts (ZDH) called the policy plan reversal “a blow to small and medium-sized enterprises.” The German Chamber of Industry and Commerce said it had received “many angry calls from companies that had been counting on a reduction in electricity tax”.

“Relieving the burden of energy prices on the population was one of the coalition parties' key election promises,” said the association of German consumer groups, who warned a deviation from ealier plans would trigger ‘an enormous loss of trust.” According to economic research institute IW, reducing the tax would have allowed an average household of four people about 93 euros per year.

Given that even many of the coalition's lawmakers expressed dismay at the decision, there is a chance that parliament will insist on amendments to the government plans.

German household power prices are among the highest in the world. On average, industry power prices are also relatively high, but the country has numerous mechanisms in place to lower cost for the most power-hungry firms. [For more details, see our factsheets What German households pay for electricity and Industry power prices in Germany: Extremely high – and low]

Industry and experts welcome EU's blessing for electricity subsidies

Germany’s large chemical industry welcomed the new EU subsidy exemptions, but added they did not go far enough. Energy-intensive companies needed additional “quick and easy” relief, said industry association VCI.

German industry has lobbied hard for many years at the national and EU level for lower electricity prices.

Industry expert Philipp Jäger from the Jacques Delors think tank in Berlin told newsletter Tagesspiegel background that the new rules strike a “fairly good” balance between climate action and preserving European industry. But he warned that state aid rules must not become too lax because “in the medium term, it is important for international competitiveness that energy-intensive industries produce in Europe's best locations – not where member states' subsidies are highest.”

The EU decision was not welcomed by all parts of German industry. Electricity companies warned the new rules lowered incentives for long-term renewable energy contracts. “This not only leads to market distortions in wholesale trade, but also slows down the expansion of renewable energies,” said lobby group BDEW.

“If Germany sinks, we all go with them,” says EU industry lobbyist

Until recently, many experts had warned the government’s plans for electricity price subsidies would be illegal under EU rules. In general, the EU forbids subsidies to prevent members from giving their favoured companies unfair advantages.

Pressure from Germany is likely to have a played a major role in the EU’s change of course, given that Germany’s objectives are seen as important for the entire EU economy. “If Germany sinks, we all go with them,” said a lobbyist for energy-intensive companies who didn’t want to be named, according to Politico.

The EU policy changes reflect the bloc's renewed focus on industry competitiveness triggered by lacklustre growth, as well as the bloc’s independence drive fuelled by the Ukraine war and the alienation from the US. Europe's committment to more defence spending also underlines the need to preserve its industrial basis at all costs.