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German industry sceptical of power tax cut plan


20 Nov 2023 08:34

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20 Nov 2023 08:34

(Montel) German energy experts and industry representatives are sceptical of a government plan to cut industrial power taxes, with the details still ambiguous and some arguing more was needed to ensure competitiveness with other nations.

Berlin is considering a cut in taxes for energy-intensive businesses from EUR 15.37/MWh at present to EUR 0.50/MWh – the lowest allowable under EU rules. The economy minister, Robert Habeck, said on 9 November that these consumers could count on prices staying below EUR 60/MWh from 2024.

The proposed tax relief would replace a previous plan to cap prices for energy-intensive firms at EUR 60/MWh until 2030, with both ideas aimed at keeping firms afloat until new lower-cost renewable energy capacity is online.

While such efforts are considered key to Germany’s efforts to become carbon neutral by 2045, some experts remain unconvinced the new plan is the answer.

Oleksander Prokhorov, an economics researcher at South Westphalia University, said the measure’s ability to drive down prices was “not that clear”.

Furthermore, he pointed to a lack of clarity as to whether the tax relief would only be for power purchases going forward or also for sales that have already been made on futures markets.

Impossible to predict
Experts said it is impossible to predict the tax cut’s effect on power prices. Furthermore, a constitutional court ruling last week means the government has lost access to EUR 60bn it had earmarked for green energy programmes, complicating its plans.

Dennis Becher, of energy consultancy Enplify, said that there were scenarios where the tax cut may bring the price down close to the EUR 60/MWh level, but that there were no guarantees.

And he said German power costs would probably stay high relative to other countries and also that there was ambiguity in Habeck’s statement, which called for an “interaction of instruments” to keep costs down.

So far, the prospect of such intervention has failed to calm German industry, with the Cal 25 German power contract last seen at EUR 114/MWh – significantly higher than before Russia’s invasion of Ukraine in February last year.

Industries likely to benefit from the tax cut – such as chemicals or metalworking – also voiced concerns about the idea.

Chemicals industry group VCI said it only solved small parts of the problem while not taking steps to make German industry more competitive, while the WSM association of metalworking firms called it a “slap in the face” since it would not benefit small- and mid-sized companies.

According to 2021 government statistics, such firms employ 56% of Germany’s workforce.

“I simply see that we have to invest a lot very quickly,” said Eva Schreiner, of energy consumer organisation VEA. “And I would like to for us to start a discussion… about how we are going to handle these prices in the short-term, because I do not see how industry can manage this solely through the market,” she added.

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