On 16 April 2026, the European Commission approved Germany’s funding guidelines for its industrial electricity price under EU State aid law (case SA.120495). This approval removes the final major obstacle to the guidelines, which are expected to be published in the Federal Gazette shortly. The relief scheme established under the guidelines will apply retroactively from 1 January 2026 and initially until 31 December 2028. Companies should now begin preparing for the first application round in early 2027.
Background
German industry has long faced high electricity costs by international standards. In response, the German Federal Cabinet presented a framework paper with funding guidelines for an industrial electricity price relief scheme at the end of 2025, followed by a more detailed draft in January 2026 (see here).
Under the scheme, the Federal Government aims to cap electricity costs for eligible companies at 5 cents/kWh by covering the difference between this price and the prevailing market price. The cost of the relief is currently estimated at around EUR 3.8 billion – EUR 700 million more than projected in December last year – and will be financed from Germany’s Climate and Transformation Fund.
The draft guidelines required approval by the European Commission under EU State aid law. This approval having been granted on 16 April 2026, implementation of the guidelines can now proceed. The Commission found the guidelines to comply with the Clean Industrial Deal State Aid Framework on the grounds that they support the development of economic activities in eligible sectors and aim to preserve the economic viability of undertakings. They also meet the requirement that the reduced electricity price be at least EUR 50/MWh. Aid recipients must invest at least half the amount received in new or modernised installations aimed at reducing electricity system costs in line with market and system needs and without increasing fossil fuel use.
Key features of the scheme
The industrial electricity price relief scheme aims to reduce the electricity costs for energy-intensive undertakings. In principle, 50% of annual electricity consumption (the “eligible consumption”) will qualify for relief, with a target price of 5 euro cents/kWh applicable to that volume. Electricity will continue to be purchased at market price but eligible consumption will attract relief equal to 50% of the average wholesale market price (the reference price), the target price of 5 euro cents/kWh will however function as a lower limit on what companies can receive.
For their part, companies have 48 months in which to invest at least 50% of the amount received in measures that contribute to reducing electricity system costs without increasing fossil fuel use (the requirement to contribute to decarbonisation).
A 10% flexibility bonus can also be granted to companies able to demonstrate that at least 80% of the investment amount is spent on investments to increase demand-side flexibility. At least 75% of the flexibility bonus must then be invested in decarbonisation measures.
Further details of the scheme can be found in our previous newsletter on the industrial electricity price (see here).
Eligible companies
The relief is limited to electricity-intensive companies facing international competition and potentially inclined to relocate to third countries. Eligible companies are those active in the sectors listed in the first part of Annex 1 of the EU’s Guidelines on State Aid for Climate, Environmental Protection and Energy 2022. Where a company is economically active in more than one sector, its categorisation under the Federal Statistical Office’s Classification of Economic Activities, 2008 edition (“WZ 2008”) is decisive, determined by its entry as of the end of the respective year. A further requirement is that the relevant points of delivery are located in Germany. Other sectors may be included at a later date after consultation with the Commission. Companies in difficulty are not eligible for the relief.
Electricity volumes for which electricity price compensation is claimed under EU emissions trading rules for the same year are also excluded. A clear separation between consumption eligible for industrial electricity price relief and consumption relevant for electricity price compensation is therefore necessary.
Application procedure
The competent granting authority is the Federal Office for Economic Affairs and Export Control (“BAFA”). Applications must be submitted using BAFA’s forms and may only be filed once per company and year. BAFA will inform companies well in advance of the start of the application and payment process in early 2027.
Applications are to be submitted retroactively for the previous full year, e.g. applications submitted in 2027 will be for the 2026 calendar year. According to the draft guidelines, the application period will end no sooner than 31 March and no later than 30 September of the application year. Applications in respect of eligible electricity consumption of 10 GWh or more must include an audit certificate from a German public auditor or equivalent body.
Recommended actions
Now that the European Commission has given its approval, companies should begin preparing for the first application phase in early 2027. As soon as practicable, they should ensure that their economic sector is correctly classified under WZ 2008, that eligible points of delivery in Germany are clearly identified, and that reliable systems are in place to measure and document eligible electricity consumption. Companies should also define projects capable of meeting the requirement to contribute to decarbonisation, differentiating them clearly from applications for electricity price compensation. Deadline management and documentation processes will also need to be established for the BAFA application. Where the consumption applied for equals or exceeds 10 GWh, companies should also include an audit certificate from a public auditor or equivalent body in their planning.
Note that because the price applies to only 50% of a company’s electricity consumption and is linked to investment obligations, the effective industrial electricity price is expected to be significantly higher than the target price of 5 euro cents/kWh envisaged by Germany’s ruling coalition. Moreover, the relief scheme will expire at the end of 2028, limiting the incentive for long-term investment by electricity-intensive companies.
Forward
