Germany’s Proposed Industrial Electricity Price Cap

On May 5, 2023, German Economy Minister Robert Habeck proposed a plan for an electricity price cap targeted at industrial, energy-intensive companies, dubbed “Ensure competitive electricity prices for energy-intensive companies in Germany and Europe”.

The scheme, defined as a “bridge electricity price”, builds on the price brake that was put in place by Germany in December 2022.[1]  

Germany’s electricity price cap aims to safeguard industrial competitiveness.  Companies looking to invest or expand capabilities in Europe take into account the comparatively higher energy costs in Europe, but also the possibility to profit from targeted tax cuts such as under the Inflation Reduction Act in the U.S.  Recently, the German government awarded battery-maker Northvolt significant tax breaks to keep its planned greenfield investment in Germany instead of building its next ‘gigafactory’ in the U.S. .

Industrial companies that qualify for the scheme would benefit from electricity at a capped price of six cents (€0.06) per kilowatt hour (kWh) for 80% of their consumption until 2030.  Companies would get reimbursed the difference between the average annual price paid and the €0.06/kWh benchmark.  The measure would cost an estimated €25-30 billion, according to the working paper, published by the German Federal Economy Ministry on May 5, 2023.[2]  In the second half of 2022, non-residential customers paid an average of €0.25/kWh in Germany, while the EU average stood at €0.21/kWh, according to Eurostat.[3]  

As for any state aid scheme, Germany will have to notify this price cap to the European Commission.  The Temporary Crisis and Transition Framework (TCTF) allows Member States to compensate undertakings (in particular intensive energy users) for higher energy prices , based on past or present consumption. 

The competitiveness of the German industry could also prove a sufficient justification under the TCTF.  As explained in our previous post here, the TCF—which amends and prolongs the Temporary Crisis Framework (TCF)—also contains a specific clause allowing Member States to grant higher individual support where there is a substantial risk of investments being diverted away from Europe.[4]  State aid granted in such circumstances can match the subsidies that undertakings would benefit from for an equivalent investment in another jurisdiction (‘matching aid’) or can go up to the level required to incentivize the company to locate the investment in the European Economic Area (‘funding gap’).  

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Written with assistance from Thomas Harbor. 

[1]           In December 2022, Germany introduced a price brake for both gas and electricity as part of its €200 billion “protective shield”.  The electricity price brake set a cap at €0.40/kWh for 80% of electricity consumption for households and small enterprises with a consumption of up to 30,000 kWh, and of €0.13/kWh for up to 70% of the electricity consumptions for medium and large enterprises with a consumption of over 30,000 kWh.  See: German Economy Ministry, Energy price brakes are entering into effect (December 24, 2022).

[2]           German Economy Ministry, Working Paper (May 5, 2023).

[3]           Eurostat, Electricity price statistics (April 2023).

[4]           Cleary Gottlieb, Commission adopts State Aid Temporary Crisis and Transition Framework (March 17, 2013).