2023-09-16 20:11:31
In the German debate about an industrial electricity price, the focus is primarily on global competitiveness. How can Germany keep up when its energy costs are six to seven times higher than in China and four times higher than in the USA, unions emphasize.
The much greater danger could come from a direct neighbor, warn EU diplomats. France already supplies its industry with cheap nuclear power. In the coming years, however, there will be much more, without the European Commission being able to impose burdensome state aid requirements.
Economics Minister Robert Habeck (Greens)’s plans for an industrial electricity price of 6 cents per kilowatt hour can also be seen as a response to this. But Berlin is also trying by all means possible to prevent Paris from cementing and expanding its competitive advantage. There is likely to be a showdown in the coming weeks.
The background is a legislative proposal from the Commission that receives very little public attention in Germany: the reform of the EU electricity market. Since prices no longer rush from record to record as they did in the summer of 2022, the design and functioning of the electricity market has become an expert topic again. This is about the central question of the energy transition: How can the EU promote the expansion of low-carbon energy sources and at the same time take consumers and industry along with it?
The perfect vehicle
In France, a support mechanism called ARENH has so far ensured that industry can obtain electricity at an extremely low fixed price of 4.2 cents per kilowatt hour. Up to 100 terawatt hours are available from the nuclear power plant park each year, just over a fifth of the country’s electricity consumption. Industrial companies have to reapply for funding every year. Recently, demand significantly exceeded supply, meaning that companies had to purchase quantities from more expensive wholesalers to cover their remaining electricity needs.
However, the French funding mechanism will expire at the end of 2025, and Brussels considers it unlikely that the Commission would agree to an extension. This is exactly why Paris is now trying to use the reform of the electricity market to secure and expand subsidies in other ways.
The electricity market reform offers the French government the perfect vehicle for this. It is intended to completely switch state support for wind and solar power, but also other low-carbon sources such as nuclear energy, to an instrument with a complicated name: so-called bilateral contracts for difference, or CfD for short. These are intended to ensure reliable income for electricity producers and at the same time reduce the risk of large price fluctuations.
Specifically, it works as follows: The state and the electricity producers agree on a kind of guaranteed price. In phases in which the market price is lower, the state adds the difference and thus subsidizes the producers. Conversely, producers have to pay the profits from the phases in which the market price is higher to the state.
Huge Sum
Paris wants to use this to finance almost its entire fleet of nuclear power plants. Contracts are being discussed with systems that generate 300 terawatt hours of electricity annually, around 70 percent of French consumption. Berlin fears that this will lead to severe distortions of competition.
The Chancellery is alarmed, say diplomats. There they fear that Paris could agree on a guaranteed price with the operator of the nuclear power plants, the recently fully nationalized EDF group, that is well below normal market conditions. We’re talking about 6 to 7 cents.
This would allow the French state to skim off money generously. He could then use exactly that to finance an electricity price for his entire industry – i.e. not just for a part like in Germany – with which no one in the EU can seriously compete.
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