Energy fears spur German industrials to seek investments abroad

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Nearly a third of German industrial companies are planning to boost production abroad rather than at home amid increasing concern over the country’s future without Russian gas, according to a closely watched annual survey.

The annual “Energy Transition Barometer” by the German Chamber of Commerce and Industry (DIHK) found that 32 per cent of companies surveyed favoured investment abroad over domestic expansion. The figure was double the 16 per cent in last year’s survey.

The chamber asked 3,572 of its members about the effect of energy issues on their business outlook as Europe’s largest economy attempts to transition away from using gas and other fossil fuels. 

Achim Dercks, the chamber’s deputy managing director, said “large parts” of the German economy were concerned about a lack of energy supply “in the medium and long term”.

Germany was long heavily dependent on Russia for gas, as leaders in business and politics largely ignored signs of the country’s increasingly hostile military ambitions, including its 2014 seizure of Crimea from Ukraine. Just before the war in Ukraine began last year, more than half of the gas consumed in Germany came from Russia.

Germany in April shut down its last remaining nuclear power plants and has said it aims to reach carbon neutrality by 2045. The rollout of green energy infrastructure has lagged behind, however.

The DIHK pointed in particular to challenges around the expansion of Germany’s power grid. Three-quarters of the 12,000 kilometres of new power lines needed to support the country’s electric ambitions had not even been approved for construction, it said.

The survey found that 52 per cent of companies responding thought that Germany’s energy transition was having a negative impact on business. The figure was the highest captured by the barometer since publication started in 2012.

The findings reflect the concerns cited by German chemical giant BASF when it chose China as the location for €10bn of state of the art petrochemicals plants it is currently building. It mentioned ready access to large amounts of environmentally-friendly energy as one of the reasons for the decision. At the same time, it announced a “permanent” downsizing at its headquarters in Ludwigshafen.

“If the conditions in Europe are not good, we will try to decarbonise in other regions faster,” BASF chief executive Martin Brudermüller had said when the company announced its most recent earnings in July.

“We get great support in China,” he said.

He added that companies were also looking to invest more in the US, pointing to the country’s Inflation Reduction Act as motivation. The act, which offers $369bn in subsidies for domestic clean energy investments in the US, provided a “business case for transformation”, Brudermüller said.

The DIHK survey reinforced complaints by BASF and others about conditions for investment in Germany.

Brudermüller pointed out in July that production by Germany’s chemical industry had dropped nearly a fifth in the past year. He attributed the decline partially to lower sales and lagging competitiveness among the German companies that are the chemical industry’s customers.

Companies such as BASF have increasingly been calling for Berlin to subsidise energy prices for heavy industry, but the issue has caused friction within Germany’s three-way coalition.

Chancellor Olaf Scholz’s Social Democratic party recently proposed a 5 cent per kilowatt hour cap for companies that have been particularly badly hit by the volatility of prices. However, the idea has largely been rejected by its liberal coalition partner.

The DIHK on Tuesday said that a guarantee of low energy prices was one way to stop industrial companies from “limiting their production in Germany, or even relocating completely”.