Veyt accessed a leak of the proposed German industrial power price scheme, due to be submitted to and reviewed by the Commission to check compliance with competition law. Set to apply for three years, starting from 2026, the subsidy is aimed at selected energy-intensive sectors.
Veyt estimates that 1,650 power-intensive beneficiaries already receiving state subsidies can secure half of their electricity consumption (51 TWh) at 50 EUR/MWh. To obtain power at a discounted price, German industrials can choose to sign Power Purchase Agreements (PPAs) from newly built renewable assets, among other options. According to our in-house calculations, this can result in 1.1 – 3.6 GW of newly contracted PPA capacity.
This incentive could spur demand for both Guarantees of Origin (GOs) and PPAs from 2028 at the earliest, although the demand potential hinges upon widespread uptake of the PPA option by the industrial sector to get subsidised power. The development further underpins the role of the legislative drivers for the environmental commodities markets.
Unlike the other state aid schemes, which include an option to source at least 30 % renewable electricity to qualify for subsidies (thereby supporting PPA and GO demand), the industrial power price scheme has no such requirement.
Subsidising industrial electricity prices in return for renewable capacity build-out is one of the new measures featured in the recently adopted Clean Industrial Deal State Aid Framework (CISAF). While CISAF provides general guidelines for state aid design, national schemes can be tailored. Italy already implemented the measure through its Energy Release; Germany is next in line, while the Greek government is set to announce whether they will adopt such a scheme by the year’s end.
The new German government has been promoting an industry electricity price since Merz took office. Berlin is in the final stages of negotiations with the European Commission concerning the details of the scheme. Then, Germany would need to submit it to Brussels for assessment to comply with EU law to ensure that the bloc’s single market is not compromised. Countries need the EC’s approval before they can grant such aid.
The industrial power price scheme applies to the same broad set of 116 sectors covered under the electricity levy reduction scheme, such as chemical, metal, glass, cement, battery and paper industries, etc. This is far more than the 16 sectors eligible under the state aid for indirect emission costs.
Energy-intensive companies will benefit from either a cap on their power price set at EUR 50/MWh or a minimum of 50 % of the reference power price for half of their electricity consumption. The reference power price is calculated as the average of traded Y+1 baseload future contracts.
The instrument’s duration is three years: from 2026 until the end of 2028. There is a built-in one-year lag for payment relief so that aid is paid out in the year following the settlement year (i.e. subsidies for 2026 will be paid out in 2027).
Optionally, companies may distribute their electricity volumes in such a way that they receive more upfront support in the first year and less in later years, while keeping the total eligible electricity consumption unchanged.
The budget allocation for the measure is front-loaded:
2026: EUR 1.5 billion
2027: EUR 0.8 billion
2028: EUR 0.8 billion
This is likely a reflection of an assumption that companies will use this option to a large extent.
Germany already has two state aid instruments the industrials can benefit from: for indirect emission costs, compensating a part of the carbon costs (Strompreiskompensation), and for electricity levies. According to the CISAF, the different aid types can be cumulated if the eligible compensation amount does not exceed the support intensity.
However, the draft German scheme specifically does not allow combining electricity price compensation for the CO2 costs with the industrial power price.
For electricity volumes eligible for both electricity price compensation and the industrial power price, companies should choose which instrument to use in each settlement year.
The document does not elaborate whether the electricity levy state aid scheme can be combined with the industrial power price.
Beneficiaries will need to invest at least 50 % of the aid amount in new or modernised installations that measurably reduce electricity system costs without increasing the use of fossil fuels, no later than 48 months after receiving subsidies.
Examples listed are the development of RES capacity, battery storage, demand flexibility, energy efficiency measures, electrolysers, and investments towards electrification. Companies can receive a 10 % aid bonus if they invest in demand-side flexibility. With this option, beneficiaries would need to invest 80 % of the electricity subsidy in flexibility measures, and at least 75 % of the bonus itself must also be invested in such measures.
Additional options may also be recognised if they measurably reduce electricity system costs, such as grid connections and connection capacity expansion, as well as PPAs from new renewable assets (including through third parties).
Half of the aid received needs to be reinvested, akin to the 50 % requirement to invest in GHG emission reduction projects in (i) the state aid for electricity levies and (ii) the CO2 cost-compensation scheme. Albeit in these two schemes, the 50 % reinvestment requirement is only one of the three options, such as reducing the carbon intensity of electricity consumption (PPAs and GOs qualify) or implementing energy efficiency measures.
Veyt notes that the industrial power scheme applicants, out of all options, could likely opt to sign PPAs from newly built renewable projects, or to invest the financial aid into energy efficiency measures.
The German industrial power scheme gives a 38 % saving against the average forward prices between 2026-2028.
| EEX German futures (year-to-date average)(EUR/MWh) | German industrial power price (EUR/MWh) | EUA price futures (EUR/tonne CO2) | |
|---|---|---|---|
| 2026 | 87.64 | 50 | 76.00 |
| 2027 | 80.85 | 50 | 78.30 |
| 2028 | 73.92 | 50 | 80.87 |
More details are yet to emerge. Once the scheme’s specifications become available, it will be possible to more accurately evaluate the impact of the scheme on the GO and PPA markets. It is unlikely that the scheme will replicate the Italian Energy Release GO arrangements, because Germany does not issue GOs to subsidised electricity volumes. In the Italian scheme, RES-E GOs associated with renewable power consumption are automatically cancelled by GSE and removed from the auction volumes.
The impact on the market will ultimately depend on the scale of the German industrials that will pursue the PPA route to qualify for the subsidy, and how many will switch from the CO2 compensation scheme to the power price support.
2023 data shows 351 German CO2 compensation beneficiaries received EUR 2.4 billion; their electricity consumption totalled 74 TWh in 2022 and 88.7 TWh in 2021. Most of the aid amount went to the chemical industry (EUR 665 million), followed by paper (EUR 651 million), steel (EUR 644 million) and metals (EUR 279 million) sectors.
Since the industrial power price covers the same sectors as the beneficiaries of the electricity levy state aid scheme, approximately 1,650 beneficiaries are likely to be eligible for the industrial power price, based on 2023 data. Collectively, they consumed 106.3 TWh, 96 % of which – by energy-intensive industries.
With only half of the electricity consumption eligible, these beneficiaries could receive EUR 1.9 billion from the industry price compensation scheme, based on the 2023 numbers. The German government pins the sum to EUR 1.5 billion for the first year, likely due to lower power consumption from the industrial sector. Of this amount, EUR 0.8 billion would need to be reinvested into the eligible activities.
For those market players who receive the CO2 compensation, the question of which scheme is more beneficial will depend on the exact sector and the price developments for power and carbon prices. According to Veyt’s analysis, the support level per MWh of electricity consumption could be higher with the industrial electricity price than with the CO2 compensation in 2026, while the trend is reversed for 2027-2028, when the carbon compensation provides higher support.
Ultimately, the decision about which scheme to opt for each year will depend on each company’s specifics and whether they price the cost of reinvestments mandated by the industry power price into the consideration. Those industries that do not fall under the CO2 compensation scheme will likely apply for the industrial power price.
Since PPAs signed for power generation from newly built renewable projects are an eligible investment, this could direct more market players to the PPA market. Those industrials that have not previously considered PPAs may be driven to enter the market. Veyt’s transaction data shows that the eligible sectors account for less than half of PPA deals in 2024, and less than a third of deals so far in 2025.
If all beneficiaries were to opt for the PPA route, this could result in a total of 21 – 39 TWh of electricity contracted via PPAs, including bundled GOs. The estimated range is based on Veyt’s Fair Value PPA prices for solar and wind in Germany and translates to a PPA capacity of 1.1 – 3.6 GW, if ten-year contracts are assumed as the standard. For comparison, the highest reported contracted capacity was 4 GW, across 40 deals in 2023. Last year, tracked volumes decreased to 1.8 GW, although the number of deals remained stable. With renewable GO cancellations for the 2024 disclosure period at 245 TWh, the industrial power price scheme would likely drive cancellations even higher.
The industry power scheme-spurred PPA deals are likely to materialise in 2028 at the earliest, if the beneficiaries start negotiations already in 2026 for projects currently under planning or in construction stage. Veyt notes that there is a limited supply of PPAs from new wind projects since most fall under the support scheme, making it likely that contracts for solar assets with shorter development times could be preferred.
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