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Policy Report: An Industrial Power Price for Germany: Assessment of policy proposals and potential ways forward

EPICO KlimaInnovation and Aurora Energy Research published a policy report analysing the proposals for a German industrial power price by the Federal Ministry for Economic Affairs and Climate Action (BMWK), and amended by the Social Democratic Party of Germany (SPD). The paper compares these to other proposed alternatives, such as a new "Eigenstrom PPA" suggestion by the Vice-Chairman of the FDP Parliamentary Group Lukas Köhler (forthcoming) and a "StromPartnerschaft", proposed by the DIHK.

"The BMWK's proposal for a bridge power price is not compatible with EU law. While it would protect specific consumers from excessive prices, going beyond what is allowed as "regulated pricing" under the current electricity market design. The bridge power price would also need a clearance by the European Commission, as per EU State aid rules," says Dr Bernd Weber, CEO, EPICO. Protection from price spikes might reduce the incentive to hedge and close PPAs, potentially hampering a market-driven renewable buildout, it is argued in the report. Also, according to Aurora's modelling, power prices in 2030 will be well-above 5-6 ct/kWh, which questions a clear end to the proposed bridge power price.

Yet, there are alternatives for Germany to remain an attractive industrial hub, also for energy-intensive sectors if a combination of measures is adopted.

The policy reports supports the BMWK's transformation power price's strengthening of the supply side of the power market via buildout of renewables. Measures contributing to a strong PPA market are the most favourable options on the supply side. Government guarantees for PPA projects or subsidized capital expenditure for PPA projects decrease financing costs and accelerate the buildout of renewables.

Altering taxes and levies could be possible short-term measures compatible with EU law, for example by reducing grid fees for PPAs, as mentioned in the proposal by Köhler. However, the study indicates, that such a measure would be of limited help for energy-intensive industries, already exempt from most non-wholesale components. Also, it would require payment of higher grid fees by other offtakers. A complementary option would be time-variant or locational grid fees, allowing a more effective use of transmission and distribution lines. Another option would be extending the "Spitzenausgleich" to avoid an increase of their electricity tax. This also has the support of the BMWK's Minister and Mr Lukas Köhler.

Production-based support is found to be a suitable option, providing multiple benefits: (1) It is compatible with EU market-rules, (2) requires no interventions in the power market, and (3) maintains the current form of incentives for flexibility and energy savings. Also, a blueprint for such support already exists in Carbon Contracts for Difference (CCfDs), and support levels could be determined efficiently via auctions.

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