ENERGY WATCH #3 - October 2, 2018
Germany’s Mittelstand threatened by high power prices, can’t save any more power
by Karel Beckman
Is the German Energiewende running up against its limits?
Bloomberg recently produced an alarming news story showing how Germany’s “Mittelstand companies” (the industrial backbone of the country) is being “weighed down” by high electricity costs in its competition with Chinese and U.S. companies.
The companies say they have already done all they can to cut energy use, Bloomberg reports, and many fear they will have to close down if nothing happens.
Electricity costs for Germany’s industrial SME’s have doubled since 2016, notes Bloomberg. which has imposed higher electric bills to pay for cutting pollution. “While 2,000 corporate giants like Volkswagen AG and chemicals maker BASF SE have their own power plants and get exemptions from environmental tariffs, smaller companies pay more to absorb those costs.”
High electricity costs have one positive effect: they stimulate energy saving. However, according to the article, the companies have run out of ideas of how to save energy.
“We’re constantly trying to improve energy efficiency,”said Klaus Schmidtke, a spokesman for Georgsmarienhuette, which employs 1,000 people and feeds steel parts into the supply chain of Volkswagen. “But to be blunt, we’ve not been able to offset rising electricity prices.”
“Energy bills for the Mittelstand were surging even before this year’s surge in the wholesale market”, writes Bloomberg. “The companies, together with households, had to cough up hundreds of billions of euros to pay for Merkel’s transition to an economy based on mainly solar and wind. That put them at a disadvantage against competitors from China to the U.S., as well as other European nations.”
“The subsidies for solar and wind projects as well as a raft of environmental taxes aimed at cutting emissions have made German electricity prices for residential and business consumers the highest in the European Union together with Denmark.”
“The rising costs have forced Mittelstand firms, almost all of which have sales of less than 1 million euros, to splash out on expensive, energy-efficient equipment and lock in prices with suppliers for several years ahead. Some are even starting to produce their own electricity, while others have shifted production abroad in a last-ditch effort to keep up with Chinese, South Korean and U.S. competitors who pay far less for electricity.”
“The rising electricity costs threaten to undermine support for Merkel’s Energiewende just as her government is seeking to make up lost ground on the faltering path toward its 2020 emissions-reduction targets. A study of the Mittelstand by DZ Bank found a third of their company leaders thought power prices were a threat to their business.”
About a third of companies have passed rising costs on to their customers, reducing demand for Made in Germany products, according to the Leipzig-branch of the Chambers of Commerce.
“The problem is often you don’t see results that quickly,”said Wolfgang Hahn, founder of ECG-Consulting, which advises German companies on how to cut energy costs. “Firms are getting extremely nervous that they can’t save money as quickly as prices rise.”
“Germany’s lobby group for glass makers has advised members on how to save ‘every last kilowatt’ of energy. Even so, all low-hanging fruit has already been picked, said Director General Johann Overath. The industry is now producing at the limits of what is possible in terms of saving power.”
And if power prices continue to rise, many companies could be forced to close down, said Utz Tillmann, a spokesman for Energy Intensive Industries Germany, which represents the nation’s energy-intensive industries. “That would destroy the tightly-bound supply chains for German industry,”he said.