Germany's electricity price package: an issue for EU industrial competition?

Electricity carries no small weight in running a business, and its importance is particularly significant for energy-intensive industries like many of those operating in the metalworking field.

That is why a recent development in Germany is noteworthy not only for companies headquartered there but also for foreign enterprises, due to the potential competitive advantages that the measure we are about to discuss may offer to German companies.

It is no coincidence that Italian Federacciai and Duferco President Antonio Gozzi commented on this initiative as a "direct attack on the paradigm of the European market, which will forever alter the relative competitiveness between the manufacturers from different countries, greatly harming the Italian industry."
But what happened exactly? Let's explore the details one step at a time. 

Germany announces electricity price relief for manufacturing companies

On November 9, 2023, the German government, under the leadership of Chancellor Olaf Scholz, announced additional relief measures for companies, particularly those involved in highly energy-intensive production, over the next five years. The focus is on reducing the electricity tax for 2024 and 2025, with the potential for extension by an additional three years if funding can be secured for 2026-2028. This move aims to significantly ease the burden on the manufacturing and industrial sectors at a time when domestic industry is suffering greatly, thus promoting economic competitiveness. In the next year alone, this is expected to result in savings of up to 12 billion euros.

The comprehensive electricity price package consists of several parts. In addition to the previously established stabilization of transmission grid fees for the first half of 2024, the electricity tax for all companies in the manufacturing sector will be massively reduced to the minimum level permitted by the European Union, decreasing from the current EUR 15.37/MWh to EUR 0.50/MWh. Further reductions are foreseen for around 350 companies facing heightened exposure to international competition.

This relief is intended to help large energy consumers such as metal smelters, glass manufacturers, and the chemical industry to remain internationally competitive.

The initiative was preceded by a months-long dispute between the governing parties about easing the burden of energy costs on the economy. The German industry has long voiced concerns about elevated electricity prices. On several public occasions, Siegfried Russwurm, head of the Federation of German Industry (BDI), has publicly stated that energy prices in Germany were so high “that even medium-sized companies from various sectors that are loyal to their location are contemplating relocating abroad”.

The cost of electricity for EU companies

According to Eurostat, during the first half of 2023 the cost of electricity for non-household consumers reached its highest point in Italy at €0.2525 per kWh and Cyprus at €0.2471 per kWh. Comparatively, the EU average stood at €0.1833 per kWh, with Germany experiencing a rate of €0.1904 per kWh for the same period.

The response to the German energy measures

Several German companies have conveyed mixed reactions to the government's energy measures. While some acknowledge the positive aspects, many consider the overall package as a suboptimal compromise. 
Energy-intensive sectors, such as the steel and automotive industries, share concerns about inadequate relief and the package's inability to achieve competitive electricity prices. 
 
According to the CEO of the German Steel Federation, Kerstin Maria Rippel, the move is a step in the right direction, but the agreement falls short of achieving the declared goal of providing substantial relief for energy-intensive companies in fierce international competition.

Environmental groups argue that the adopted actions undermine incentives to reduce energy consumption and emissions. 

As stated above, some representatives of European energy-intensive companies have expressed harsh criticism toward this move, which occurs at a time when France has also taken independent steps, signing an agreement with EDF, the country's main energy company, on an average nuclear power selling price of 70 euros/MWh.


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