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Debate Heats Up in Germany Over Electricity Price State Aid

 |  August 28, 2023

The German government coalition finds itself divided over the issue of whether to provide subsidies for electricity prices to energy-intensive industries, such as the chemical and steel sectors. Even Chancellor Scholz’s own Social Democrats party is now opposing his stance.

As the German government prepares for a retreat at Castle Meseberg on August 29 and 30, the demands for subsidizing electricity prices for energy-intensive industries are growing stronger. This is creating added pressure on Chancellor Olaf Scholz to come to a decision.

The SPD’s parliamentary group, set to convene on Monday prior to the government retreat, has circulated a proposal outlined in a document obtained by EURACTIV. The proposal suggests introducing a subsidized electricity rate of 5 cents per kilowatt hour for select industries over the next five years.

The document states, “This revised electricity pricing should be extended to both electricity-intensive corporations and pivotal industrial sectors in the midst of transformative changes, as outlined in the European ‘Net Zero Industry Act’ within the Green Industrial Plan.”

Read more: EU’s Vestager Is Hesitant Over Germany’s Electricity Subsidy Plan

Lars Klingbeil, the SPD’s chairman, remarked during a recent event on August 24, “I take it upon myself now to persuade those who remain skeptical.” However, he acknowledged that a decision might not be imminent and could potentially be deferred until December.

German industries are grappling with elevated gas and electricity costs after the nation shifted away from Russian gas. Economy Minister Robert Habeck of the Greens initially suggested subsidizing electricity prices for energy-intensive industries like chemical and steel manufacturing, with the aim of retaining these industries within the country.

This strategy would prevent these industries from relocating their production abroad. Habeck, who advocated for a “transitional electricity rate” of 6 cents per kilowatt hour for 80% of heavy industry needs until 2030, emphasized, “The quandary lies in choosing between incurring debt or losing our industrial base.” Consequently, he leans toward taking on additional debt.

Scholz, however, adopts a more cautious stance. He asserted, “We cannot afford a debt-driven short-term solution that reignites inflation or a indiscriminate, perpetual electricity price subsidy.” Scholz made these remarks earlier this month on August 16, implying the possibility of a temporary resolution.

EU Competition Chief Margrethe Vestager has also emphasized the need for “careful consideration” while implementing electricity price subsidies for specific industries. She cautioned that smaller companies could be placed at a disadvantage if not done prudently.

Source: Euractiv