Higher CO2 prices let electricity costs rise for German industry

Driven by the rise in European carbon prices, electricity prices in Germany are climbing, shaking the confidence among industrial companies after a year and a half of the pandemic, Jürgen Flauger and Silke Kersting report in Handelsblatt. Small and medium-sized companies in particular are facing major challenges as a result of rising costs and energy policy experts are sounding the alarm, writes the newspaper. On the energy exchange EEX’s futures market, 1 megawatt hour (MWh) of electricity to be delivered in the coming year costs nearly 70 euros – the highest it’s been in 12 years and double the price it was in March 2020. The wholesale price is the basis for many contracts with industrial customers. The rising electricity costs are a result of higher CO2 prices, which are seen as necessary in order to achieve climate targets. Lower electricity prices are therefore unlikely any time soon, the article says.

“This is a shock for many companies, especially medium-sized companies,” says Wolfgang Hahn, managing director of ECG Energie Consulting, which arranges energy contracts for companies. “Electricity prices are becoming an increasing burden for many companies,” with some facing a 75 percent electricity price increase within a year. Some political leaders are calling for countermeasures in the form of tax relief to cushion the rising costs that could impede the country’s industry. "Electricity costs are an important location factor," says Michael Theurer, deputy chairman of the Free Democratic Party’s (FDP) parliamentary group. "State cost components make up over half of electricity prices."

Many energy-intensive companies are already relieved of such surcharges but rising wholesale prices remain a problem as they form the basis for longer-term electricity contracts. The power prices paid by industry are one of the most contentious aspects of Germany's energy transition and its economic impacts. Business lobby groups routinely call the price of electricity a central threat to industry competitiveness. But sweeping claims in this debate hide the fact that there is no single power price for industrial consumers, but instead an exceptionally broad range of prices. Due to a complex system of taxes and levies, they depend on how much power companies need, when they need it, how they source it, whether they compete with rivals abroad, and many other factors.