_ Yuri Kofner, Economist, MIWI Institute. Munich, 31 May 2023.
The industrial electricity price proposed by the Greens and CDU/CSU is a planned subsidy with many downsides that will cost the German taxpayer almost 60 billion euros. Instead, the energy policy measures proposed by the AfD would reduce the electricity price for the entire manufacturing sector to below 9 cents per kWh and make it competitive with China in this respect.
Why is the electricity price for industrial customers so high?
Over the past decade, the price of electricity in Germany for large industrial customers has more than doubled, from 8.7 cents per kWh in 2013 to 18.4 cents per kWh in 2022.[1]
Overall, Germany has already had the highest electricity prices in the world for several years. In the USA these are five times lower, in China 8.5 times.[2]
No wonder, then, that there are daily reports of German companies relocating their production abroad.[3] The high electricity bills are leading to deindustrialisation. Between 2016 and 2022, for example, the share of the manufacturing sector in the German economy shrank from 26 per cent in 2016 to 23.5 per cent in 2022.[4] Since 2021 until March 2023, production growth in energy-intensive industries in particular has slumped by 16.5 per cent.[5]
Greens and CSU propose industrial electricity price – with many disadvantages
In order to calm down the disgruntled big industry somewhat, the Green Ministry of Economics and Climate Change is now proposing the introduction of an industrial electricity price of 6 cents per kWh.
However, the term is somewhat misleading. First of all, one should not forget that the traffic light government has already introduced an electricity price brake of 13 cents per kWh for large industrial customers. It will apply until at least April 2024.[6] According to the German Council of Economic Experts, the electricity price brake will cost German taxpayers a total of 13.8 billion euros, or around 920 euros per net taxpayer.[7]
Secondly, it should not be forgotten that the state has been paying the EEG levy for electricity-intensive companies since summer 2022. According to calculations by IW Köln, this will cost over 50 billion euros between 2022 and 2026 alone, i.e. 3,300 euros per net taxpayer.[8]
Thirdly, according to the BMWK proposal paper, the industrial electricity price does not apply to the entire manufacturing sector, but only to energy-intensive industry and also only to 80 percent of consumption. The industrial electricity price is to be in force from 2024 to 2030.[9]
The introduction of an industrial energy price is supported not only by the Greens and the SPD, but also by the supposedly free-market CDU/CSU.[10] And the media criticism of the coalition partner FDP is also likely to be nothing more than a sham opposition, as was the case with the heating ban, the nuclear phase-out and the phasing out of combustion engines.
The proposed industrial electricity price should be rejected for many serious reasons:
As with the electricity price brake, the industrial electricity price is a state cap on the wholesale electricity price before taxes. This subsidy is to be financed by the state, i.e. through new debt and/or higher taxes.
According to calculations based on data from the BDEW and the Association of Energy-Intensive Industries[11], the industrial electricity price will amount to 8.4 billion euros per year. By 2030, the total costs (under the simplified assumption of constant energy intensity and electricity prices) amount to just under 59 billion euros, the equivalent of 39,000 euros per net taxpayer.[12]
The Industrial Power Award is to be financed with funds from the Economic Stabilisation Fund (WSF), which was actually set up to help companies that got into difficulties due to the Corona restrictions. This clear misappropriation is thus, from a budgetary point of view, an extremely questionable but unfortunately already common practice of the FDP Ministry of Finance.
Since the industrial electricity price only covers energy-intensive industry, this will lead to a competitive disadvantage for the rest of the manufacturing sector and for all other non-industrial sectors, which already pay about twice the price. This will lead to a further erosion of Germany’s small and medium-sized businesses.
Why are electricity prices so high?
There is a much better alternative to the industrial electricity price. But to understand this, one must first understand the reasons for the extremely high and increased electricity prices in Germany.
The established parties want voters to believe that the reasons are the war in Ukraine and other independent external factors. However, this is wrong. The main reason for the energy price explosion is the green energy transition.
Due to the expansion of volatile wind and solar power generation paired with the phase-out of nuclear and coal-fired power, the total annual costs for grid stabilisation measures increased tenfold between 2013 and 2021, from €214 million to €2.3 billion.[13] According to the German Federal Network Agency, these will increase 55-fold to €11.8 billion by 2024 compared to 2013.[14]
According to estimates by former RWE manager Christian Loose based on the ewi merit order tool,[15] the phase-out of nuclear and coal power, the increase in the price of emission certificates and lower investment in fossil fuels due to the Paris Climate Agreement have increased the average German merit order electricity price almost sevenfold, from 3 cents per KWh in 2017 to 20 cents per KWh in 2021. Of this price increase, 12 per cent is due to the tightening of energy supply, 30 per cent to the shortage of CO2 allowances and 58 per cent to the Paris agreements.[16] It should be noted that this cost increase had already taken place before the Ukraine war.
Last but not least, taxes amounted to 11.2 per cent of the electricity price for industrial customers in April 2023.[17]
Alternative solution instead of interventionist industrial electricity prices: Expansion of energy supply and tax cuts
As can be seen, the industrial electricity price is thus a government intervention to fix a problem caused by government policy. Therefore, the solution to the high and increased electricity costs in Germany should not be another subsidy, but an expansion of the base-load capable and regulable energy supply and a reduction of taxes on electricity.
The AfD, for example, calls for Germany’s withdrawal from the EU ETS, a reduction of the electricity tax to the EU minimum level and a reactivation of the last six remaining nuclear power plants.[18] Calculations based on the ewi merit order tool show that these three measures alone would reduce the electricity price for industrial customers by almost 70 percent to 8.8 cents per kWh (comparison of the electricity generation structure between the end of April 2023 and 2017 plus a CO2 certificate price of “0” euros). This would make the cost of electricity for all German industry, not just energy-intensive companies, competitive with production conditions in China. If energy taxes were reduced to the EU minimum and new nuclear power plants were built, as demanded by the AfD, the price of electricity would be even lower.
Sources
[1] BDEW (2023). BDEW-Strompreisanalyse April 2023. URL: https://www.bdew.de/media/documents/230420_BDEW-Strompreisanalyse_April_2023_20.04.2023.pdf
[2] Global Petrol Prices (2023). Electricity prices for business, September 2022 (kWh, Euro). URL: https://www.globalpetrolprices.com/electricity_prices/
[3] A small overview of the recent production closures in Bavaria can be found here: Antrag AfD. Ausmaß der Deindustrialisierung Bayerns offenlegen! Drucksache 18/27681. URL: https://www1.bayern.landtag.de/www/ElanTextAblage_WP18/Drucksachen/Basisdrucksachen/0000017500/0000017546.pdf
[4] Destatis (2023). VGR Monitor Deutschland. Wirtschaftsstruktur. URL: https://service.destatis.de/DE/vgr-monitor-deutschland/bip.html
[5] Destatis (2023). Produktionsentwicklung in energieintensiven Industriezweigen. URL: https://www.destatis.de/DE/Themen/Branchen-Unternehmen/Industrie-Verarbeitendes-Gewerbe/_Grafik/_Interaktiv/produktionsentwicklung-energieintensiven-industriezweige.html
[6] Bundesregierung (2022). Energiepreisbremsen kommen. URL: https://www.bundesregierung.de/breg-de/suche/energiepreisbremsen-2145728#:~:text=Die%20Strompreisbremse%20wirkt%20f%C3%BCr%20alle,f%C3%BCr%20das%20gesamte%20Jahr%202023.
[7] SVR (2023). Konjunkturprognose. März 2023. URL: https://www.sachverstaendigenrat-wirtschaft.de/fileadmin/dateiablage/Konjunkturprognosen/2023/KJ2023_Gesamtausgabe.pdf
[8] VBW (2022). Wirtschaftspolitisches Monitoring des Bundeshaushalts. IW Köln. URL: https://www.vbw-bayern.de/Redaktion/Frei-zugaengliche-Medien/Abteilungen-GS/Wirtschaftspolitik/2022/Downloads/22115-vbw-Studie-Wirtschaftspol-Monitoring-Bundeshaushalt_final.pdf
[9] BMWK (2023). Arbeitspapier des BMWK zum Industriestrompreis für das Treffen Bündnis Zukunft der Industrie. URL: https://www.bmwk.de/Redaktion/DE/Downloads/W/wettbewerbsfaehige-strompreise-fuer-die-energieintensiven-unternehmen-in-deutschland-und-europa-sicherstellen.html
[10] CDU / CSU – Fraktion im Bundestag (2023). Energieintensive Industrien dürfen nicht im Stich gelassen werden. URL: https://www.cducsu.de/presse/pressemitteilungen/energieintensive-industrien-duerfen-nicht-im-stich-gelassen-werden
[11] EID (2022). Stromverbrauch der energieintensiven Industrien. URL: https://www.energieintensive.de/
[12] There are about 15 million net taxpayers in Germany: Heinsohn G. (2016). Deutschland muss endlich den Abgang von Hochkompetenten stoppen. NZZ. URL: https://www.nzz.ch/meinung/auswanderungsland-deutschland-kompetente-wandern-ab-ld.104291
[13] Bundesnetzagentur (2022a). Bericht Netzengpassmanagement. Gesamtes Jahr 2021. URL: https://www.bundesnetzagentur.de/SharedDocs/Downloads/DE/Sachgebiete/Energie/Unternehmen_Institutionen/Versorgungssicherheit/Engpassmanagement/Zahlen%20Ganzes%20Jahr2021.pdf;jsessionid=371B0FEC4DC4E862D537801A61A24952?__blob=publicationFile&v=4
[14] Bundesnetzagentur (2022b). Prognose des Umfangs und der Kosten der Maßnahmen für Engpassmanagement. URL: https://www.bundesnetzagentur.de/SharedDocs/Downloads/DE/Sachgebiete/Energie/Unternehmen_Institutionen/Versorgungssicherheit/Netzreserve/PrognoseNetzSystemsicherheitskosten2022.pdf?__blob=publicationFile&v=2
[15] Arnold F. et al. (2022). ewi Merit Order Tool 2022. ewi. URL: https://www.ewi.uni-koeln.de/en/publications/ewi-merit-order-tool-2022-update/
[16] Loose C. (2023). Stellungnahme für die Anhörung zur Strom- und Gaspreisbremse am 09.03.2023 im Landtag Bayern. Gesellschaft für Fortschritt in Freiheit e.V.
[17] BDEW (2023).
[18] Mannes G. (2023). Sicher, günstig, technologieoffen – AfD-Fraktionen von Bund und Ländern beschließen Münchner Resolution zur Energiepolitik. AfD-Fraktion im Bayerischen Landtag. URL: https://www.afd-landtag.bayern/2022/12/23/gerd-mannes-sicher-guenstig-technologieoffen-afd-fraktionen-von-bund-und-laendern-beschliessen-muencher-resolution-zur-energiepolitik/
2 comments