Companies and consumers are bearing the cost of Germany’s switch to renewables. But large companies that use high amounts of energy have been exempted from paying the surcharge, leading medium-sized businesses to feel hard done by.

By Ella C. Mittelbach

Hall One is an inferno. Every few seconds, sparks fly and boiling slag lights up the steelworks. Between the machines and the barriers glows a giant arc furnace, its electric arcs melting scrap steel. The molten metal will later be used to produce reinforcing steel and wire rods. Arcelor Mittal has been supplying the global market with these products for 40 years now. The steel manufacturer employs over 300 people in Hamburg alone, and has confirmed that it will remain in the city for the time being. “For the time being” being the operative phrase. The company channels over 800 gigawatts of electricity into its production every year – enough to power a city of 500,000. Marc Hölling, a process technician at Arcelor Mittal, is, in principle, in favour of Germany’s switch to renewables. However, he is critical of rising electricity prices. “Even our more energy-efficient furnaces require a huge amount of electricity,” shouts Hölling above the din of the steelworks.

The Renewable Energy Act (EEG) aims to expand renewable energy in Germany. Written into law in 2000, it stipulates payment of a surcharge on top of the normal electricity price to cover the higher costs of fostering renewable energies. Initially, the Renewable Energy Act surcharge was set at 0.41 cent per kilowatt hour, but it was raised to 3.6 cent in 2011. The following year, the surcharge was increased again to 5.3 cent per kilowatt hour. To ensure that energy-intensive industries would remain competitive at international level, all companies in the metal, cement and chemical industries were declared exempt from paying the surcharge. Companies initially qualified for exemption if they used over 100 gigawatt hours of electricity. This threshold was then reduced to ten GW/h and again in 2012 to just 1 GW/h. But only companies whose energy costs amount to at least 14 percent of their production value are eligible for the exemption.

All consumers pay the Renewable Energy Act surcharge, it’s just that energy-intensive companies pay significantly less. The German government took this step to protect German jobs by encouraging big companies like Arcelor Mittal not to move production to countries where electricity is cheaper. Arcelor Mittal has numerous production facilities around the world. In Germany alone, it has 25 plants employing over 8,000 people in total. “If we had to pay the surcharge, our costs would exceed our revenue. Either we are granted the exemption or we have to close the Hamburg plant,” says Hölling. 

Another production facility at another company: At the Jastram plant in Hamburg, the machines work at full speed, even after the working day is over. The air is heavy with the smell of lubricant and diesel, and the hall is full of large, brass-coloured ship propellers. There are also a few rudder propellers wrapped in clear plastic leaning against the walls. It was the patent for these propellers that established the Jastram brand on the international shipping market. The medium-sized company has 30 employees and is based in Hamburg’s Bergedorf district. It was founded 120 years ago when it began building diesel engines. Since the 1950s it has specialised in marine steering technology, and now exports 80 percent of its rudders and control systems around the world. Manager Gerhard Erb has invested heavily in energy-saving measures in recent years. “And now we have this huge surcharge to contend with, while large companies are exempt,” says Erb. He is sympathetic to the situation of the exempted companies, but his concerns lie with his own company. He is therefore calling for “a rethink on the exemption regulations and limits for the EEG surcharge – to the benefit of exporters.”

In a market economy, any interference distorts competition. “After all, Germany does not subsidise any orange plantations or the textile industry, for example, in order to compete with markets in Italy and Bangladesh,” says Wolfgang Maennig, a professor of economics at Hamburg University. He says that the EEG surcharge may be a subsidy, but it is also an investment in the future. “I believe that it will not be long before we have developed renewable technologies to the point where they can succeed on the market without subsidies,” he says.

Even environmental associations like Greenpeace support the subsidies for large industrial companies. “Of course, we have to support energy-intensive industries like steel, aluminium and paper manufacture as their business depends heavily on the global market price,” said Niklas Schinerl, spokesman for Greenpeace in Hamburg. Despite this, he believes too many companies have been exempted from the surcharge. He says that not every larger medium-sized business should be exempt – otherwise the surcharge will need to be gradually increased for private individuals. “Companies already benefit enough from locating their production in Germany – we don’t have to carefully nurture every single company,” he says. He also believes it may be little more than bluster when companies claim they will relocate abroad if they are not exempted from the surcharge.

Maenning cannot say whether or not the exemption limits should be redefined. He sees that as the responsibility of policymakers, and suspects that, at any rate, few changes to the surcharge are likely until the German elections are over. “TV reports of plant closures never go down well before an election,” he says.

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