EU Commission Clears Path for Lower Industrial Power Prices to Aid Energy-Intensive Companies
Subsidies for lowering energy expenses given approval by European Commission - EU Commission permits financial aid to lower energy expenses
Welcome to the new era of industrial power price relief! With the EU Commission's fresh aid framework, energy-intensive firms now have a viable route to lower their power costs. This move aims to help these companies stay competitive while driving the industry towards a greener future.
According to Competition Commissioner Teresa Ribera in Brussels, this instrument will foster climate protection, fortify Europe’s industrial resilience, and maintain a competitive edge globally.
The main aim is to aid the transformation of industry towards a neutral carbon footprint without causing considerable economic turmoil. The subsidies will assist energy-intensive and internationally competitive companies in coping with these transitional times.
The EU Commission refers to this as ”bridge aid,” designed to hold firms afloat until the energy transition advances further, and power prices return to a globally competitive level through networking and renewable energy expansion.
Capped Price Reductions with Strict Limits
Under the new framework, power prices may be discounted by up to 50% of the wholesale price. However, the discount will not exceed half of the company's annual electricity consumption. And, it’s crucial that the subsidized price never drops below 50 euros per megawatt hour.
The aid runs for a limited duration: subsidies may be granted for no longer than three years per company, ending no later than December 31, 2030. As reported by “Handelsblatt,” the details emerged earlier this week.
Only firms that are heavily dependent on power for production and involved in extensive international trade can benefit from this aid. This double requirement means the most power-hungry firms feeling the heat of high energy prices in international competition will receive support.
Take the German chemical and steel industries as an example. These sectors are energy-intensive and are under heavy pressure due to escalating energy costs. Since the start of 2022, production in energy-intensive industrial sectors has been steadily dropping and has performed weaker than the overall economy. The five industrial branches with the highest energy consumption collectively employed close to a million people in 2021 [ref.].
In the coalition agreement, the black-red government had agreed to alleviate energy-intensive firms with an industrial power price, provided it was in line with the EU state aid rules.
Tug-of-War - Aid versus Green Investments
A central feature of the new EU rules is linking the aid to investments in a cleaner economy. The Commission wants to guard against companies amassing profits with aid without having to implement changes.
At least half of the state aid must be funneled into tangible projects geared towards modernizing and reducing CO2 emissions of companies. Only fresh or updated plants can be funded under the subsidies. Furthermore, funding is off-limits for projects that have already received grants from other aid programs.
Eligible investment areas, as per the European Commission, include the following:
- Expansion of renewable energy sources
- Development of energy storage systems
- Measures to enhance demand-side flexibility
- Efficiency improvements in industrial processes
- Use of electrolyzers for hydrogen production with reduced CO2 emissions
Under certain conditions, support for gas and nuclear power may also be possible.
By implementing this framework, the Commission intends to achieve both short-term relief and create a lasting investment signal. State aid will be strategically used to bridge gaps, with a particular focus on mobilizing private investments.
Sources:
- European Commission: Clean Industrial State Aid Framework (CISAF)
- European Commission: Press Release: EU State Aid: Commission proposes new €35 billion framework to help EU industry become climate-neutral
- European Commission: Fact sheet: Supporting the European industrial transition through the Clean Industrial MIP and the Clean Industrial State Aid Framework
- European Commission: Clean Industrial State Aid Framework (CISAF): figures
- European Court of Auditors: The EU Emissions Trading System: areas for concern and potential savings
[ref.] Federal Statistical Office, Production in energy-intensive industrial branches in Germany[ref.] Federal Office for Economic Affairs and Export Control: Key energy-intensive industries in focus
To implement the EU Commission's strategy for industrial power price relief, certain requirements must be met by eligible companies, including engaging in substantial vocational training to reduce carbon footprint and adhering to the Community policy on state aid.
Moreover, to ensure sustainability, the provided aid will be heavily tied to investments in greener economies, such as vocational training programs focused on energy efficiency, renewable energy systems, hydrogen production, and demand-side flexibility. This will ensure the industry remains competitive financially while transitioning towards a green future.
