Brussels warns Germany against electricity subsidy for industry

The EU’s energy commissioner has warned Germany that a cap on electricity costs for industry would harm Europe’s single market, as she urged Berlin to back fairer reforms to ease power prices.

Kadri Simson, a commissioner from Estonia, challenged Germany’s idea of an “industry price” for electricity as she advocated the European Commission’s alternative proposals to stabilise the market through the use of long term contracts.

“A lot of member states have different budgetary possibilities to subsidise their industry,” Simson told the Financial Times, referring to Germany’s nascent proposals. “We have to take into account that there has to be fair competition in the EU.”

Simson added that the commission’s plans, announced on Tuesday, would instead allow German industry to “step up in the electricity market” and opt for “long-term five- to 10-year predictable pricing schemes” rather than taxpayer support.

Robert Habeck, Germany’s economy minister, said last week that Berlin was progressing with plans for an “industrial price for electricity”, saying businesses should be able to benefit from the low cost of renewable energy through “power purchase agreements” with wind and solar developers.

“Production costs are at about 5-9 cents per kilowatt hour, and that’s where the corridor lies,” he told reporters. However, he implied such a scheme would only work once there were plentiful supplies of cheap renewable power available. “The renewables must first be built, of course.”

Simson said the idea of lower tariffs for industry would have to be considered by the commission’s state aid officials.

Germany has come under fire repeatedly during the energy crisis for using government funds to support its own industry at the expense of fair competition within the bloc. Part of the reason for gas prices reaching record highs of €300 per kilowatt hour last August was because of a sudden rush by Berlin to buy non-Russian gas supplies ahead of the winter.

The reforms proposed by Brussels are aimed at avoiding similar price jumps recurring in the electricity market by promoting long-term contracts for renewable energy and giving consumers more transparency and choice. But the measures stop short of a full overhaul of the market.

The German economy ministry said it was examining the commission’s proposal “in detail” and that it supported efforts to increase hedging in the power market to ensure that the “advantages of renewable energies . . . reach the consumer even better”.

Several EU diplomats from southern European countries argue the reforms do not go far enough to stop gas prices contaminating the electricity market, as happened last year. “Right now [the proposal] doesn’t seem to address the problems,” said one senior EU diplomat.

Spain circulated a paper in January advocating more radical reforms that would widely introduce contracts for difference, which allow governments to recoup profits from a power generator if generation costs fall below a certain “strike” price.

Brussels has instead proposed that contracts for difference should be used for public investments in new renewable or low-carbon technologies. Simson said the inclusion of low-carbon power was a nod to France and other member states that wanted to direct funding towards nuclear.

“The commission has a responsibility to be technologically neutral,” she said.

Additional reporting by Guy Chazan in Berlin and Sarah White in Paris