There are few countries in Europe that have higher electricity prices than we do. In the USA, private consumers pay less than half and companies only around a third of what electricity costs in Germany. Together with the Inflation Reduction Act (IRA) of the Biden administration, which mainly consists of tax breaks for investments in the USA, the location conditions in the USA are many times better than in Germany.
How realistic is an “industrial electricity price”?
The federal government seems to be slowly noticing this, because many companies from Germany have to make their investment decisions in these weeks and months, and energy prices are becoming increasingly important in addition to tax burdens. So the Federal Minister of Economics promises an industrial electricity tariff that is to be subsidized from tax funds. The Federal Chancellor also made such a promise in the 2021 election campaign, but the German economy has not only been waiting for this promise to be kept since the war in Ukraine.
How realistic is such an “industrial electricity price”? Around 600 terawatt hours of electricity are currently generated in Germany each year, that is 600 billion kilowatt hours. If one assumes, as a very rough estimate, that a little less than half of this is required in industry, then we come to around 250 billion kilowatt hours of electricity consumption in industry. A cent less in the price of electricity for industry would therefore – still a very rough estimate – amount to a good two billion euros.
Electricity is becoming scarce due to the shutdown of nuclear power plants and restrictions on hydropower
If the price of electricity were to be reduced noticeably, ten cents per kilowatt hour would have to be spent. Under 20 billion euros per year, no effective relief on electricity prices would be possible for companies. We would then still be a long way from the industrial electricity price that the Federal Chancellor – admittedly before the Ukraine war – promised German industry.
The figures show what funds from public coffers would be necessary to correct the effects of the traffic light coalition’s policy on the economy. This policy is driving up electricity prices from two sides at once: On the one hand, the supply is artificially reduced with the decommissioning of nuclear power plants and the restrictions on hydropower and biomass.
Expand supply and dampen demand!
The expansion of wind and solar energy is also taking significantly longer than the traffic light is based on in its planning. On the other hand, the demand for electricity is artificially increased by the one-sided commitment to e-mobility in transport and to heat pumps in private households. So it’s no wonder that we have such high electricity costs in Germany. Instead of laboriously correcting the upheavals in the electricity market with subsidies from the tax budget, which incidentally has not yet been approved in Brussels, it would be better to expand supply from all available sources and curb demand, for example by making transport more open to technology – and building sector.
But that contradicts the ideological commitments of the traffic light to the electrification of our entire economy. In other words, anyone who distrusts the market economy and wants to unilaterally tie companies and private households to a specific technology is becoming more and more entangled in subsidies and social compensation mechanisms for the consequences of their own policies. Even so, you can massively damage an economy and the public budgets at the same time. The mail from Merz – The traffic light government lives in the fantasy land of energy and economic policy
