Germany Approves Multi-Billion Euro Subsidy to Lower Industrial Energy Costs

The German federal cabinet has approved multiple measures to reduce energy prices.

Reducing electricity taxes and grid fees will alleviate the burden on businesses and consumers.

The German government will permanently reduce electricity taxes for manufacturing, agriculture, and forestry companies to the lowest level within the European Union. It is expected that this measure will exempt related companies from 1.5 billion euros in taxes in 2026, with annual tax exemptions reaching 3 billion euros starting from 2027.

In addition, the government has specifically allocated 6.5 billion euros as federal subsidies to offset transmission network costs, benefiting both industrial enterprises and private consumers. According to the German Association of Energy and Water Industries (BDEW), transmission network costs currently account for about 28% of the total electricity price. Over the next four years, Germany will allocate a total of 26 billion euros from the Climate and Transformation Fund (KTF) to reduce grid costs.

The government also plans to abolish the natural gas reserve tax starting in 2026—the tax rate was €2.99/MWh in the first half of this year and €2.89/MWh in the second half. The natural gas reserve tax was temporarily established in 2022 to help cover the high costs of replacing Russian gas following the outbreak of the Russia-Ukraine conflict.

In Germany, electricity prices consist of four components: wholesale price, electricity tax, surcharges, and grid fees. The grid fees are the costs for using the power network, while surcharges are used to fund specific government initiatives.

As the largest economy in Europe, Germany's electricity prices rank among the highest in the world. According to data from the German ifo Institute (a think tank), the industrial electricity price in Germany was about 0.20 euros per kilowatt-hour in 2023, while the industrial electricity price in the United States was approximately 0.07 euros per kilowatt-hour, and in China about 0.08 euros per kilowatt-hour. The average electricity price for household users in Germany reached 0.38 euros per kilowatt-hour.

The new subsidy measures are expected to reduce Germany's industrial electricity prices by about 0.05 euros per kilowatt-hour. Even so, electricity prices for German companies will still be twice as high as those of their competitors in China and the United States.

It is estimated that about 600,000 German manufacturing companies will benefit from the current energy price relief measures.

The German Ministry for Economic Affairs and Energy stated in a press release that all energy-intensive industries facing international competition are included in the scope of the relief measures, particularly the chemical, metal, automotive, and mechanical engineering industries. Local enterprises engaged in energy-intensive production, such as bakeries, butcher shops, construction companies, and trade companies, will also benefit from it.

The ministry added that subsidies for electricity transmission network costs are particularly beneficial for small and medium-sized enterprises.

"This is good news for everyone—both businesses and consumers," announced Katherina Reiche, Germany's Federal Minister for Economic Affairs and Energy, on September 3rd. "Starting next year, we will reduce electricity costs for users by 6.5 billion euros annually, totaling 26 billion euros over the next four years. High energy prices affect everyone, and for businesses, this concerns competitiveness. Through the transmission network fee subsidies approved today, we are providing significant relief to electricity users; at the same time, we will permanently reduce electricity taxes for the manufacturing and agriculture-forestry sectors. Along with the previously approved cancellation of the gas storage tax, we are implementing most of the relief measures agreed upon in the coalition government agreement."

For a long time, the German chemical and plastics industries have been calling on the government to provide support in response to high energy prices.

The German Chemical Industry Association (VCI) welcomes the new relief measures.

"The German government has resumed work with strong momentum after the summer recess," said VCI Managing Director Wolfgang Große Entrup. "This is a good thing. What we need is a sprint, not a marathon, and even more so, strong signals. These measures are a start; now the government must stick to its chosen course and keep pushing forward."

VCI also pointed out that companies need assurances that the reduced grid fees after 2026 will not suddenly increase again; at the same time, it once again called for the establishment of an industrial electricity price, a demand that the previous government failed to commit to implementing.

Plastic recycling companies will also benefit from lower electricity prices. For a long time, the Plastics Recyclers Europe (PRE) has been calling for urgent measures to protect the plastic recycling industry from collapse.