Chancellor Olaf Scholz’s ruling coalition is stalling on a proposal to subsidize power prices for industrial companies after Berlin’s fiscally hawkish finance minister questioned the tool and its affordability.
(Bloomberg) — Chancellor Olaf Scholz’s ruling coalition is stalling on a proposal to subsidize power prices for industrial companies after Berlin’s fiscally hawkish finance minister questioned the tool and its affordability.
Germany has some of the highest electricity costs in the EU, driven up by the effort to replace Russian gas, its exit from nuclear power and a move to phase out coal-fired generation as soon as 2030. Policymakers originally indicated that they would present proposals to trim power prices for energy-intensive companies this week but agreement looks unlikely for now.
A spokesperson for the economy ministry, led by the Greens, said Tuesday that they are unable to say when details will be published.
The push for discounted electricity tariffs linked to the use of renewables has been criticized by Finance Minister Christian Lindner, who heads the business-friendly Free Democratic Party and is ideologically opposed to government subsidies.
Lindner, who has become increasingly vocal in recent months as support for the FDP slides in opinion polls, published an article in the German newspaper Handelsblatt on Tuesday in which he said relying on state aid is “economically unwise” and “contradicts the principles of our social market economy.”
“I therefore take a very critical view of the industrial electricity price, which is also being considered in part by our coalition partners,” Lindner wrote. “Extremely expensive subsidies are the wrong way to go about” keeping energy prices affordable.
During a panel discussion on economic policies in Dresden on Tuesday, Scholz did not mention the idea of subsidizing industrial companies with a reduced power price when he was asked what policymakers could do to tame soaring inflation. Instead, Scholz welcomed efforts by the European Central Bank to slow down price pressures with higher interest rates.
It’s also important “to ensure that the cost drivers become cheaper – energy supply, for example,” Scholz said. “We have to produce as much power as possible ourselves with renewables and this will lead to a gradual reduction in this cost driver.”
Lars Klingbeil, a co-leader of Scholz’s Social Democratic Party, proposed in an article published over the weekend financing discounted electricity tariffs — by as much as seven cents per kilowatt-hour — from a €200 billion ($219 billion) fund created to help offset the impact of the energy crisis.
The party had earlier floated linking industrial power prices to renewables, which can produce at much lower market prices, for example via long-term contracts.
However, the expansion of renewables is lagging in Germany and significant new offshore wind capacity is not expected to go online before 2025. Existing power-price subsidies introduced to help businesses through the energy crisis will be phased out by April 2024 at the latest.
“To bridge this gap, we need a model for a transformational power price to stop companies moving their operations abroad,” said Bengt Bergt, an SPD spokesman for energy policy. “There are still discussions on how to achieve this, but we agree that this still has to come this year.”
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