Plugged In: the energy news podcast
Coming from the heart of the Montel newsroom, Editor-in-Chief, Snjolfur Richard Sverrisson and his team of journalists explore the news headlines in the energy sector, bringing you in depth analysis of the industry’s leading stories each week.
Richard speaks to experts, analysts, regulators, and senior business leaders to the examine not just the what, but the why behind the decisions directing the markets and shaping the global transition to a green economy.
New episodes are available every Friday.
Plugged In: the energy news podcast
Germany's industry power price: hit or miss?
Germany boasts the biggest economy in Europe. Yet energy-intensive industries in the country are struggling with high energy costs versus their global competitors.
The German government has said it will aim to lower the cost of power to EUR 50/MWh - far below current wholesale prices - from 1 January 2026 with the launch of its new industry power price.
What are the implications for German companies, larger firms as well as the smaller and medium sized companies that are the engines of the country’s economy?
In this episode, Richard speaks to Dr. Claudia Kemfert about the current sentiment towards the coalition government. In addition, what doed its plans to tender 10GW of predominantly gas-fired power plants says about Germany's commitment to the green energy transition?
Host: Richard Sverrisson - Editor-in-Chief, Montel News
Contributor: Christian Driessen - Germany Editor, Montel News
Guest: Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy at Leuphana University Lüneburg, and Head of the Energy, Transportation and Environment Department at the German Institute for Economic Research
Editor: Oscar Birk Hellenes
Producer: Sarah Knowles
Hello listeners and welcome to Plugged In - the Energy News podcast from Montel, where we bring you the latest news issues and changes happening in the energy sector. This week we take a deep dive into German energy matters, and it's been a busy few weeks for the government in Berlin. We've seen announcements for its power plant strategy and also plans for new industrial electricity price. There are many who think that energy prices are still too high. While demand remains too low. What are these changes and how will they affect German industry? Could there be other alternatives that would avoid locking in a fossil fuel future? In this episode, I'm gonna be speaking to Claudia Kemfert from the German Institute for Economic Research. But first, I'm joined by Christian Driessen, who is editor of our German team. Welcome to the podcast, Christian.
Christian Driessen - Germany Editor, Montel News:Thank you, Richard.
Richard Sverrisson - Editor-in-Chief, Montel News:It's been a while since we've had you on.
Christian Driessen - Germany Editor, Montel News:Definitely!
Richard Sverrisson - Editor-in-Chief, Montel News:Yep. There's a lot to unpack here in terms of what's happening in Germany. It's certainly, as I said in the intro, it's been a very few busy few weeks in Germany. Let's start with the government's plans for new power plants. What have the government announced and how has the energy sector in Germany responded to this?
Christian Driessen - Germany Editor, Montel News:So what we are going to see over the next two years is tenders for new controllable capacity for the German power market. It's going to be 10 to 12 gigawatts. Eight gigawatts right away will be mainly or will be completely gas fired power plants.
Richard Sverrisson - Editor-in-Chief, Montel News:Okay. And but how is the energy sector responded to that though, would you say Christian? Has there been ever received positively or is it meh?
Christian Driessen - Germany Editor, Montel News:The clear answer is, it depends. It really depends on who you ask. You have some utilities that are. Ready to hit the ground running. They have all the permitting in place basically, and they can start constructing these power plants right away, but they're still waiting for the details to fall in place. And the German regulated BNA, who's responsible for drafting the tenders, cannot start drafting the tenders as long as everything is watertight and sealed. So this is what we are still waiting for, but they are happy that things are moving along and this discussion gained finally some momentum. On the other hand, we have critics who say Germany is going to lock itself into gas for far too long in the foreseeable future. And they also criticize the lack of technology neutrality in the tenders because they want to use other means to provide controllable generation capacity. But overall, I think most are happy that we are finally moving into a direction where we get more controllable generation capacity to back up intermittent renewables and also the German coal phase out.
Richard Sverrisson - Editor-in-Chief, Montel News:So as ever, the devil is always in the detail. So we've also seen Germany's Vice Chancellor and Finance Minister Lars Klingbeil say that he's confident that the EU will approve Germany's program to implement a new industrial power price at the start of next year. This program is estimated to cost between three and 5 billion euros. Can you explain what it is, how it will work and why it's necessary for Germany?
Christian Driessen - Germany Editor, Montel News:Berlin and Brussels reached a preliminary agreement, but we still need to wait for all the details. But they are compliant with EU competition rules, it looks like we are going to get a green light for Brussels and basically energy intensive companies will get a limit to their power price at around 50 euros per megawatt hour, which is probably going to cost the German taxpayer around 3.1 billion euros. Berlin says we are going to do it in an bureaucratic way, and it will be there for three years, but there's a catch. Companies will not see the money right away, but there is a build in one year time lag for the first payout. So they start calculating next year and the first money will only flow 2027.
Richard Sverrisson - Editor-in-Chief, Montel News:Okay. That's it seems also seems a little bit bureaucratic anyway, but Yeah.
Christian Driessen - Germany Editor, Montel News:Germany after all.
Richard Sverrisson - Editor-in-Chief, Montel News:Yeah, exactly. So how will this affect companies in Germany? Christian,
Christian Driessen - Germany Editor, Montel News:the big question is who actually benefits from this because. You cannot clash subsidies. There are some companies that already get subsidies for their carbon cost, the carbon component, and the power generation costs, and they will probably not be eligible to get both at the same time. So for a few companies, this is probably going to help, but other companies will still feel like they're being left out in the cold, which is especially true for smaller and medium sized businesses who don't have enough weight in this whole discussion to actually get the subsidies that they want or need. This is why we are hearing about this de-industrialization topic in Germany all the time because industry has been suffering from higher energy prices for quite a while now, and it just doesn't seem to go down.
Richard Sverrisson - Editor-in-Chief, Montel News:Seems a bit unfair as well that only the large companies got the smaller ones get their benefits.
Christian Driessen - Germany Editor, Montel News:When the coalition came up with a coalition agreement, they actually promised to lower power prices for everyone in Germany, not only industrials, but also households. And they so far haven't delivered on this promise, and this is something they're being heavily criticized for quite a while now. And now with this whole discussion about the industrial power price, everything comes back to the surface again, where many people just demand lower power prices altogether. So some are happy, others obviously are not
Richard Sverrisson - Editor-in-Chief, Montel News:Christian. Thank you very much. Let's bring in this week's expert who can tell us more about the significance of these announcements. I'm pleased to be joined by Claudia Kemfert, professor of Energy economics and Energy Policy at Leuphana University, Lüneburg and Head of the Energy, transportation and Environment Department at the German Institute for Economic Research. A warm welcome back to the podcast, Claudia.
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Thank you for having me. Hello, everybody. I'm glad to be here.
Richard Sverrisson - Editor-in-Chief, Montel News:Perfect. I think Claudia, I'd like to start off by talking about the energy sector more generally in Germany. What's the sentiment like at the moment? Is there sort of impatience with the new government or generally more broader support?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:I would say the sentiment is mixed and most often ambivalent, if I could say that, that way. So many appreciate the governments also the crisis management also during the last energy crisis and also what we have seen in the past LNG rollout and also the strong momentum of for renewables. But at the same time, we see that more and more companies, I would say, are increasingly frustrated also by by slow government decisions or not fast enough. What the governments said that they would be early changes are made and that's not happening. So there still slow permitting their regulatory zig sacking. And I would say also a lack of cohering long-term strategy. So the sector sees the potential, I would say, of the energy vendor or the energy transition. And there's confidence in the overall directions that this, that is or remains high. But what is missing is reliability and implementation. And businesses need yeah, stable frameworks and long-term signals and a regulatory environment that reduces complexity and not increases complexity. So the reduction of complexity is really important. And this is what also the current government said. There is an autumn of reforms and that's not really happening at the moment.
Richard Sverrisson - Editor-in-Chief, Montel News:I'm sure we'll return to some of these issues, Claudia, but I want to talk about a little bit of a hot topic at the moment in Germany, which is the, industry and industrial power price. Now, obviously industry is vital for Germany as it is for Germany industries, very important for all of Europe, but energy intensive industries in the country have been struggling with high energy costs and versus global competitors. And the German government had said it was aimed to lower the cost of power to as little as 50 euros per megawatt hour from 1st of January next year. What's your view of this?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:We see this industry power price, that we do not solve the problems. In fact, it's, to my opinion, risk creating new ones actually. So that's some kind of subsidizing electricity consumption that never does really address a real structure changes, which are needed. What we need more on increasing share of renewables. We need ppa, purchase power agreements. So direct contracts with the renewable energy companies. We need more electrification. We have outdated processes. We have limited efficiency and really a slow smart decentralized grid expansion and also administrative hurdles. So we have an international market which is struggling. And all this creates difficulties to energy, also energy intensive companies. And the industries already face a lot of exemptions or have exemptions, and there's an additional one, which is not really solving the structure changes which we really need. We are now subsidizing industrial freeze prices or subsidized industrial freeze prices. And the old system is not modern enough and it rewards also energy intensity rather than innovation. So it's, it creates also fairness issues to my view. So the small, medium sized companies, many of which are already investing heavily also in energy efficiency and also electrification. They are not benefiting and that's not fair. I say that's also unfair. And also largest consumers like households receive also not least kind of discounts or there's some fairness issues here as well. But I would say. The strongest point is that we really need in a higher share of renewables immediately. And instead of this industrial prices that's really not solving the issues.
Richard Sverrisson - Editor-in-Chief, Montel News:So you're opposed to this measure then this move and this legislative proposal. Claudia?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Yeah. No. Yeah, opposing. It's not really what I would really favor. So we have so many issues, as I said, and this is what we really need urgently are this structural programs or these energy and tens of companies need to modernize and they're not modernizing enough. And by subsidizing a price or subsidizing consumption, we could say that's not really solving it. And what we really need is is more modernization and subsidizing the transformation, the decarbonization. All of this, this really necessary and here we could put subsidies to help the companies. But freezing the price for three years and what is then, what is after the subsidy? So the problems are then the same. So it's not solving at all any of these kinds of problems we have.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely. You mentioned PPAs and stimulating the demand for PPAs. How can the government get involved here, Claudia, do you think? To incentivize, maybe the growing uptick in PPAs there, there's been a bit of stagnation in the PPA market in recent, in recent months.
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Exactly. And that's should be increased. We need these kind of alternatives and helping the industry to transform. So there could be a support for the transformation by this long term renewable power contract. Probably also by a framework which standardizes the PPAs for small medium enterprises, for example. Or in addition to that also the contracts for difference, which my institute also is really offering or supporting several times also for strategic technologies that could give companies also predictable prices without permanent subsidies. And here the government could put the framework for this and helping this to get transparent environment for this. Yeah, but also the transformation support itself. So by clear climate goals and the investment aids also for the transformation, for the electrified processes, for anything that is needed for heat pumps, e boilers, and all this. And support for green hydrogen as well. But you are right, the PPAs there's stagnation, so we need the standardization for it. And also a transparent support, this could be done by a framework, but also by clear signals , to increase of renewables, and that is not, the current decisions does not help at all for these kind of contracts.
Richard Sverrisson - Editor-in-Chief, Montel News:So you mentioned, increasing the share of renewables there, Claudia. Does that need to be turbocharged and are we talking onshore wind, solar, offshore or everything?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Yeah. We need a turbo. I like this word. So we need a three times higher steeper increase of solar and wind, three or four times turbo than before. So fast approvals for renewables. We need this smart grids decentralized grids. We need more storage, which now is becoming a better framework by the most recent decisions, also by the government, which is not too bad. To get all the battery storage also into the system. But the faster approvals are important. And digitalization is needs to be mentioned, electrification of everything and clear deadlines. The procedures need to be improved and the processes improve the costs. Also the structure costs needs to be reduced, so there need yeah, some kind of market reform that promotes the flexibility instead of the, instead of the fix demand. So demand responses are important in real time is important as well. Yeah. Support for storage, hybrid renewable parks and all the flexibility system that needs that needs support, that reduces the volatility and also the industrial risk. So at the end we need this kind of flexibility into the market. Yeah.
Richard Sverrisson - Editor-in-Chief, Montel News:The German grid is famously they're our famous bottlenecks, certainly from north to south, but there are also massive bottlenecks in the queues to, for access to the grid and also for accessing for batteries to come on board. It could. For example, how can you speed that up? So you fast track the permitting process. Claudia, how can you do that in practice?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Yeah. Now the recent most recent decisions by the government to get the the battery storage fast into the system by also reducing the whole process and the permit process and to get it more transparent and faster that helps now and in proving and also steeping the process up or speeding speeding the process up. That is really important for for the flexibility, as you said, the bottlenecks and the grid are also on the decentralized level. The more electric cars we will have in the system, the more heat pumps, also decentralized heat pumps including the batteries. The batteries could help to improve the decentralized grid bottlenecks and, increase the flexibility here. By the procedures need to be faster and the processes can be speed up by also having a clear procedures and transparent processes. And now the most recent decisions it helps a lot, I think, in order to bring the battery storages into the system and that would bring also more flexibility and it should compete to this fossil world. The government wants to maintain with a more fossil gas power plants also, but the flexibility is more key than that. And yeah. I think we will see a faster, now a faster decision processes by grid authorities to improve the, or to increase the battery, the battery in the system. Yeah.
Richard Sverrisson - Editor-in-Chief, Montel News:I think that would certainly help. And then that kind of fast track process will increase the uptake of batteries into the system. But I just wanna come back to what you said about contracts for difference or CFDs as they're called Claudia. I know that your institute's done some work on that. Could you just explain to our listeners what's on the table or what's being proposed here?'cause it's talking about. Two-sided versus one side of CFDs. How does that work?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Yeah, just one comment. Also, as you said, what is needed also for renewable increase? I just wanted to mention that still the projects still take too long, not to be misunderstood. So we really need more digital procedures and fewer redundant steps and so on. Clear priorities. That is what I wanted to set in order to get also the municipalities that, to get their direct financial benefits out of it. Yes. You mentioned, the Contracts For Difference. So that is for companies to very attractive, I think to get a certain price a fixed price for a certain project when it's too expensive or vice versa. They have to pay back. Also the the what the revenues if the price is lower and one sided means that's I'm not sure whether I can explain that very good in my words. When you have a certain company that gets a certain price for a project will be benefit by this contracts for difference or two sides means I'm not quite sure, but that I can explain that correctly. Probably in English you can do that better than me.
Richard Sverrisson - Editor-in-Chief, Montel News:No problem. I think it's clearly that, it works on a different level. It's a contract with the government, so the government agrees a certain payment. If the prices goes above a certain level and the companies need to pay it back if it goes below. I think that's, those are the crucial elements there Claudia. I think we don't need to go into any more detail than that. But these would obviously target sort of small and medium sized businesses. Would it that be a, that would be a way of getting them involved?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Yeah. I'm pretty sure especially the small and medium sized companies can get involved both by standardized PPAs, but also for this Contracts for Difference, CFD where you have an investor incentive and get a certain, also the planning security for a certain project which is needed here for those companies. And reduce also the process complexities. I think that could balance the market. And also balance, also demand responses and the storage options in order to reduce the bottlenecks as you mentioned. And also, price spikes, which could happen. And this contracts for difference balance all this better and brings indeed the small and medium sized companies into the system in order that they can also, avoid a high CO2 price or high costs related to that, and get better incentives for investments than without. So I'm yeah, I would say yes especially for SMEs. It's attractive this kind of system now.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely. Another thing I wanted to talk to you about, and we have discussed this before when you've been on the podcast, is the German government plans for new gas plants? I think I think it's intending to, to tend them up to 10 gigawatts, if I'm not mistaken. What are your views here?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:I'm very skeptical, that's my personal view. Still, I'm still very proud of skeptical because I think yes, flexible backup capacity can be useful also in the renewable base system. But the way Germany is now approaching this 10 gig of a tender carries also risks. Because the key concern I have is that the tender could discriminate against other flexibility options and those I mentioned already before battery storage or also demand site responses, hybrid renewable energy parks or. Yes. Also district heating, flexibility or other interconnectors. So these options can often provide the same system services with lower costs and lower emissions and higher innovation potential. And, if there are fossil, I call it fossil gas turbines that also stick to this fossil path which we don't want to have anymore as it creates emissions. And of course if it's if the gas turbines are filled with sustainable biomass, it might be an alternative as well. Instead of fossil gas or hydrogen ready. That could also be more than a label of, we would have really green hydrogen in the future. So if the tender should be really, it should be technological neutral. It's a word that Germans love Technologieoffenheit or technology neutral. So focusing really on delivering flexibility at the lower system cost if the storage and also other options like demand responses are also included. I think it could be efficient and it could also be they can compete in equal terms so that's more than just this flexible backup capacity, and we will see how fast and how much, how many of these gas fired power plants are really constructed. So because hydrogen ready is not really happening, it's more or less sustainable biomass, which might be of interest, and the design must ensure that these plants do not undermine renewables and flexibility markers and storage, which is really important.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely. Would the other case be that perhaps, the case against batteries and storage, so that technology can't still provide the level of power for a sustained period? Say if there is, a sustained period of very low wind then the storage can't do it in the same way that a gas fire plant could.
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Yeah. For a certain hours of a year it might. But only in the future where we really have 80 or 85% of renewables in the system, not now where we have all this reserve capacities and we are full of reserve capacity, but in the future, yes. But I would also say we have heat storage options, which could also offer longer times or yes, hydrogen in the future, which we don't have right now, but in the future we will have could offer the same. So I'm a bit more skeptical only because of this large number of fossil gas fired power plants, but 10 gigawatt is much better than 20. So I'm not that but I'm still a bit of skeptical only because of the competition against other storage and flexibility options.
Richard Sverrisson - Editor-in-Chief, Montel News:Absolutely. And it may prevent those options coming into the market if you can always fall back onto fossil gas plants. Would a capacity mechanism or a reserve system, strategic reserve be better, do you think?
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Yes, exactly. Our institute is quite, has critics against this capacity market at the moment because it would subsidize also fossil capacities, which is quite expensive. And they did a study also on comparing the cost of the alternatives of this capacity market. Comparing to a security of supply reserve, which we think is enough at the moment which is a reserve, which we already have at the moment, but with different kind of capacity reserves which come into the market when they are needed. And this reserve, could be extended in the future and should be also open to all kind of alternatives in meaning of reserve. But the capacity market itself, a full capacity market at the moment would also distort the market, would discriminate flexibility options and would more support the fossil capacities, which is. Not what we should do at the moment.
Richard Sverrisson - Editor-in-Chief, Montel News:And that's the direction of travel, which the government has certainly clearly said it will go towards. But a final question, Claudia, if I may, if you work in academia. Academia, you see a lot of students you have done in the past. What, how would you mark this government? So if you were to mark this government, give us government a mark out of 10, what would you give it? 10 being the highest.
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Ten is highest. Oh, that's, yes. It's easier for students to mark, actually, than the government. So we're not in school, but they're not really performing very well at the moment, I have to admit, although I always want to be very positive and always want to motivate students by not providing too low marks. But here I would say it's not higher than a five, it's more four or five.
Richard Sverrisson - Editor-in-Chief, Montel News:Plenty of work to do, especially on the speed and the urgency of meeting the energy transition. Claudia it's a always a pleasure having you on the podcast. Thank you very much for joining the Plugged In - Energy News podcast this week.
Dr. Claudia Kemfert - Professor of Energy Economics and Energy Policy:Thank you very much for having me, Richard. A great pleasure. I'm looking forward to the next time. Thank you.
Richard Sverrisson - Editor-in-Chief, Montel News:Our new listeners. Thanks for listening to this episode of Plugged In. If you enjoy this discussion, please like, rate and follow to make sure you get the latest podcast episodes as soon as we release them every Friday. We'd also love to read your reviews of the podcast. It helps us to keep up to date with what you, our listeners, think of our podcast and what content you want to receive more of. Finally, you can head to montelnews.com for more news and analysis from our team of journalists across Europe and beyond. See you next time.
