Germany to cut power tax as coalition rejects industrial power price

Germany is set to reduce tax on electricity for energy-intensive companies after the coalition rejected plans by Energy Minister Robert Habeck for a fixed industrial power price.

Chancellor Olaf Scholz (SPD), Finance Minister Christian Lindner (FDP) and Economy and Energy minister Habeck (Greens) reached a compromise to reduce the tax to the lowest allowable level under EU regulations, state broadcaster ARD said Nov. 9.

The move could cost some Eur12 billion in 2024 with the tax falling from Eur15.37/MWh to 0.05%.

More companies and consumers including small and medium-sized firms would benefit from such a measure, rather than focus on the energy-intensive companies that compete in a global market as under the industrial power price proposal.

According to the report by ARD, there could be additional support for those 350 German firms until 2025 to bring power prices to the proposed Eur60/MWh, likely via an extension of the current "power prices brake" beyond spring 2024.

Utility association BDEW welcomed the ruling coalition's "power price package" for companies including the significant cut to the electricity tax, extension of power price compensation as well as a so-called "super cap" for energy intensive companies.

"It is very good news that the federal government is not intervening in energy price formation. A regulated industrial electricity price would have impaired price formation in the market negatively impacting the wholesale electricity market. We need price signals for investments in energy efficiency, in renewables, but also for the transformation processes in industry," BDEW managing director, Kerstin Andreae, said in a statement.

BDEW and renewables association BEE called upon the government to extend the power tax cut to other sectors including electro-mobility, heat pumps and battery storage.

Habeck in October presented a new industrial strategy outlining some Eur50 billion of support measures for Germany's struggling industry after energy-intensive sectors saw production declines of around 17% in the first half of 2023, with many companies suffering from high energy costs.

The strategy quantified higher electricity prices German companies have to pay compared to France, the US and China.

German baseload power for 2024 delivery settled Oct. 24 at Eur112.38/MWh, EEX data shows.