Debated for years by politicians and business leaders, the industrial electricity price looks set to become reality. The Federal Cabinet has agreed a set of key proposals and is aiming to start the legislative procedure by the end of the year. State aid approval from the European Commission will be requested in parallel. The plan is for the industrial electricity price to come into effect as of 1 January 2026, retroactively if necessary, improving the competitiveness of electricity-intensive companies and securing Germany’s position as an industry hub. Requirements built into the price will incentivise investment in decarbonisation projects, ramping up the transition to renewable energies.
Background
High electricity prices have put pressure on energy-intensive industries such as chemicals, steel and glass. German industry has faced higher electricity prices than its international competitors for several years now, and the price of electricity has become a critical factor. Tax relief and lower network charges have bridged the gap to some extent, but according to the Federal Network Agency (Bundesnetzagentur) the average electricity price for electricity-intensive companies in September 2025 was 10.04 euro cents/kWh, significantly exceeding the price five years ago (6.39 euro cents/kWh).
The issue prompted the partners in Germany’s current ruling coalition to include the introduction of an industrial electricity price for electricity-intensive companies in their coalition agreement in May of this year. The legislative process should at least be off the ground before the year is out, and the European Commission’s State aid approval will be requested in parallel. The plan is for the industrial electricity price to come into effect as of 1 January 2026, if necessary retroactively. And this won’t come cheap for the Federal Government: the highest expenditure is expected in 2027, for which approx. EUR 1.5 billion are earmarked in the Federal budget. The two years after that will likely both see annual expenditure of around EUR 800 million. This puts the total cost of the State aid at approx. EUR 3.1 billion.
Key proposals
The key proposals for the industrial electricity price have now been set out in a paper drafted by the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie), to be discussed and approved by the Federal Government as a whole.
- Term and date of payment: The programme is to run for three years (2026 to 2028). The State aid is to be paid out in the respective following year, i.e. State aid for 2026 will be paid out in 2027.
- Eligible quantity of electricity, target price, reference price: The basic rule is that 50% of a company’s annual electricity consumption is eligible for State aid. The target price for this quantity is 5 euro cents/kWh. Electricity will still be purchased at the market price, but companies will receive compensation equal to 50% of the average wholesale price (reference price). The target price of 5 euro cents/kWh will however function as a lower limit on what companies can receive.
- Beneficiaries: Companies will qualify for payments if they are demonstrably electricity-intensive and face international competition which might force them to offshore production. The goal is to assist companies 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. This list covers 91 sectors and subsectors, including parts of the chemicals industry, the metal industry, glass and ceramics manufacturing, rubber and plastics processing, cement, battery and semiconductor production, as well as parts of the paper industry, and certain aspects of mechanical engineering and raw materials extraction. Further sectors and subsectors may be added to the group of beneficiaries in consultation with the European Commission.
- Decarbonisation in return: The State aid is conditional on compliance with the obligations to invest in decarbonisation set by the European Commission. Companies must invest at least 50% of the State aid they receive in projects that reduce electricity system costs without increasing fossil fuel use. Investment options include the development of renewable energy generation capacity, energy storage solutions or energy efficiency improvements. The State aid recipient can invest in its own site facilities or in third parties, but must do so within 48 months of the aid being granted.
- Flexibility bonus: Under a new bonus mechanism, the State aid granted will receive a 10% top-up if the company shows that at least 80% of its investment in one of these decarbonisation options has gone into increasing demand flexibility. In turn, at least 75% of the flexibility bonus must be invested in decarbonisation.
- Degressive State aid option: Companies can also change how the eligible quantity of electricity is allocated over the term of financial support in order to concentrate the effects of relief early on. They can have significantly more than 50% of their electricity recognised in the first year and then less in the second and third years. The details of this option will be agreed with the European Commission during the notification procedure.
- Combination with other funding instruments: The industrial electricity price is an alternative to Germany’s existing electricity price compensation (Strompreiskompensation), so combining the two will not be possible. Companies should instead decide whether to utilise the industrial electricity price or electricity price compensation for a specific year. Other forms of relief, for example from electricity tax or network charges, will remain in place but be subject to cumulative legal limits on State aid.
Outlook and recommendation
Companies in potentially affected sectors should now check (i) whether their line of business and electricity use qualify them for the industrial electricity price, (ii) whether that price is a better deal for them than electricity price compensation, and (iii) what decarbonisation projects they could invest in to comply with the price’s reinvestment requirement.
A bill laying down the details of the industrial electricity price will be going through the German parliament over the coming weeks. This process, as well as consultations with the European Commission, may result in changes to the key proposals outlined above. Industry associations have correctly pointed out that these proposals fall short of what the ruling coalition had announced. The price applies to only 50% of a company’s electricity consumption, and companies must make investments in return, which means that the actual industrial electricity price will be significantly higher than the 5 euro cents/kWh the coalition was aiming for. What’s more, the relief will cease at the end of 2028, limiting the incentive it gives electricity-intensive companies to make long-term investments.
Forward
