Verband der Industriellen Energie- und Kraftwirtschaft e.V.

The VIK – Verband der Industriellen Energie- und Kraftwirtschaft e.V., Berlin/Germany, calls on the German government to quickly implement Chancellor Olaf Scholz’s announcements to relieve the burden on industry. The entire manufacturing sector has been suffering for months from high energy prices and steadily deteriorating local conditions, as all indices show. In the face of a stubbornly sluggish economy, site closures and job cuts across the country, relief is urgently needed to maintain Germany as a centre of industry and to provide much-needed impetus for an economic recovery.

Christian Seyfert, managing director of VIK: “The Chancellor seems to have recognised the seriousness of the situation and is drawing the right conclusions. But that’s not enough. We need noticeable and lasting relief in the short term to avoid falling further behind internationally in terms of competitiveness.”

Above all, energy costs are unacceptably high by international standards. This is the main cause of the ongoing plight. The costs for the supply of electricity and gas are a decisive factor for companies, both in short-term production and long-term investment decisions. Added to this are the spiralling system costs of the energy transition, especially the acutely rising grid fees. Otherwise, a continuation of the economic downturn is certain – with serious consequences such as the loss of jobs and prosperity.

As previously demanded by VIK, Chancellor Scholz recognises two particularly suitable instruments for directly counteracting the high prices: An expansion of the electricity price compensation (SPK) leads to further companies being relieved of some of the costs of electricity procurement. In conjunction with the promised subsidies for the state-regulated network charges, the necessary relief is possible.

“We have no more time to lose. It is essential that the federal government and the coalition supporting it now follow up Chancellor Scholz’s announcements with action,” said VIK Managing Director Seyfert. (VIK/Si.)

The announcements of the last few weeks clearly show how serious the situation is for energy-intensive industry in Germany: production at domestic sites in Europe is being reduced, investments in new plants are taking place in North America or in Asia. “If industrial electricity prices of 120 to 140 €/MWh become the “new normal”, creeping deindustrialisation is inevitable. The lack of competitiveness with locations with significantly lower energy costs will lead to further relocations,” says Christian Seyfert, Chief Executive of the VIK Verband der Industriellen Energie- und Kraftwirtschaft e.V., Berlin/Germany. In view of the high energy prices, especially for electricity, the conditions for competitive domestic production are becoming increasingly difficult. It is expected to take at least another six years until the planned “green” industrial electricity price is reached – six years in which the production costs of many German goods will exceed the possible revenue in international competition. That is far too long. In this debate, the VIK expressly welcomes the fact that the Federal Ministry of Economics and Climate Change is considering a national and European interim model. However, it is still unclear what this should look like and when at least the proposals are to be published. Although energy prices have recently fallen again, they remain at a very high level in international comparison and in comparison to the pre-crisis year 2019. Before 2019, electricity prices were in the range of 20 to 50 €/MWh, but today companies still face prices of 120 to 140 €/­MWh. “Profit margins are getting lower, companies’ equity ratios are decreasing and depreciation will exceed investments in the future,” warns Seyfert. Investments will still be made in maintenance and preservation, but less and less beyond that. Without these necessary new investments, expenditure on industrial transformation and more climate-friendly technologies will also fail to materialise. Time is pressing for a solution here, because when long-term electricity supply contracts expire in 2025 and the current market electricity prices have to be paid, basic production is often simply no longer profitable. In recent weeks, there have already been the first prominent case studies of this development from the chemical, metal and automotive industries, which have been widely reported. Production cutbacks, production stops, staff reductions, new investments in other regions of the world with more attractive location conditions – this is how Germany is eroding as an industrial location. The situation is particularly problematic for energy-intensive basic industries and export-oriented companies. Globally offered products compete with those from China, the USA and other regions, which have considerable competitive advantages in view of significantly lower energy prices and other locational advantages. Many of these products are also actually urgently needed in the energy transition and the industrial transformation to climate neutrality in Germany. The high level of electricity prices also makes the location of new industries less likely, both in international and European comparison. “With these electricity prices, it is not possible to bring back essential parts of the value chains or attract battery cell as well as photovoltaic module producers. At present, it is simply unprofitable to invest in Germany. If the industrial transformation to climate neutrality does not take place in Germany because of the too high energy prices, but elsewhere, nothing will be gained for our location,” says Seyfert.(VIK/Si.)

The German Association of Industrial Energy Consumers (VIK), Berlin/Germany, has expressed concern about the unexpected problems in the European power supply on 8th January 2021. Christian Seyfert, VIK Managing Director: “The incident on 8th January is unfortunately not the first of its kind, but it must be a warning to us all to not lose sight of the topic of grid stability and security of supply. Germany cannot assume that we will be supplied in one way or another from other European countries if we do not have enough power.”

Several news portals unanimously report that Europe may only narrowly escape a blackout, caused by a sudden drop in voltage in South-East Europe, whereas at the same time there is an electricity shortage in France, meaning that 13 nuclear power plant units are currently not connected to the grid. Comparisons have been drawn to an incident in November 2006, when a complete blackout in Western Europe was caused by the deactivation of two lines in Germany, which resulted in roughly ten million households being suddenly left without power.

Seyfert pointed out that with the phasing out of nuclear energy and coal in Germany in the coming years so-called guaranteed capacity from conventional energy generation will be shut down, to a large extent without replacement. This will lead to significant challenges in the security of supply regionally and nationwide, to which policy responses must also be developed. “The principle of hope is not enough. An inexpensive, climate-friendly, but also secure power supply is a decisive location factor for industrial companies subject to inter-national competition”, highlighted Seyfert. It is doubtful whether this will damage the business location of Germany. (VIK/-Si.)

Günter Hilken, Chairman of the Executive Board of Currenta GmbH & Co. OHG, was elected to the Chair of the Executive Board of the Verband der Industriellen Energie- und Kraftwirtschaft e.V. (VIK), Berlin/Germany, at a meeting of the association’s board on 27th April 2018. He succeeds Roland Mohr in the role, who is leaving office after three and a half years for personal reasons.