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Blocking the Flow

Isar nuclear energy paul langrock zenit laif-DISTORTED
Clouding relations between France and Germany.
  • Why it matters

    Why it matters

    The big problem in competing subsidies for energy-intensive industries: They favor large firms and punish small ones.

  • Facts

    Facts

    • At 5.7 cents per kilowatt-hour of electricity, an energy-intensive factory in Germany pays 0.9 cents more than a competitor in France.
    • A French proposal would reduce network fees for energy-intensive industries by up to 60 percent.
    • Climate goals are stymied by national interests.
  • Audio

    Audio

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After 50 years of German-French friendship, ministers in both countries set up an energy partnership in 2013. At best, this collaboration is working, but not quite as planned. Formally, Germany and France are working together; but actually, they are falling over themselves to support industries which are energy-hungry.

One of the “partnership-oriented” themes is support for generating and marketing electricity, an area where France is eagerly learning from Germany. The French suspect that Germany charges private households a very high price for electricity and, in turn, subsidizes energy-intensive industries. And companies and politicians in France are convinced that measures taken by the European Commission only partially reduce the disadvantages this creates for French industry.

The same goes for electricity as in every market: Since the game is played with marked cards, you can never trust your opponent — oops, friend, I mean. German businesses are convinced they pay almost twice what their French counterparts are charged for cheap electricity from nuclear plants.

But according to the Fraunhofer research institute, an energy-hungry factory in Germany pays 5.7 cents per kilowatt-hour, only 0.9 cents more than a competitor pays in France. In any case, actual prices paid by major customers are not known because contracts are confidential.

Whoever is big enough and has enough capital to make acquisitions in France can lower their energy costs. Whoever isn’t so mobile is excluded from the party.

But the French government remains convinced it should keep supporting industry – and is pursuing a two-track strategy. On one hand it is negotiating with Berlin to promote a common energy market in Europe. On the other, it seeks cost advantages at national level, trying for example to keep cheap Spanish energy from renewable sources out of its domestic market.

Last week, French economics minister Emmanuel Macron promised to reduce the cost of electricity for energy-hungry industries. His goal is to get below the costs of old nuclear power plants which have been written off, which are 4.2 cents per kilowatt-hour. Mr. Macron has vowed to accomplish that with his “law governing growth,” which is supposed to be ratified by the French parliament in early 2015. This will enable him to organize French financial support for big energy users so it flies under the European Union’s subsidy radar.

But Mr. Macron is not a magician: The more favorable terms that are offered to major customers, the higher the prices charged to other users and private households.

This is not the only iron that the French government has in the fire. It also intends to reduce network fees for energy-intensive industries by up to 60 percent. And it is encouraging the nationalized energy giant, Électricité de France (EDF), to participate in electricity-intensive companies to reduce costs.

A warning must be issued here against drawing false conclusions: It is not only French companies that are helped, and not only German companies that suffer. For example, the German firm Trimet Aluminum is profiting from a strategy of bringing on Électricité de France as a partner. Last year, it purchased a large aluminum smeltery in the French Alps — where the French energy supplier offers cheap electricity unchallenged by competition from long-ago written-off hydraulic power plants. EDF has a share in the Trimet facility.

 

Total Production of Energy

 

The competition for subsidies aims at supporting national employment, regardless of where the company is based. Whoever is big enough and has enough capital to make acquisitions in France can lower their energy costs. Whoever isn’t so mobile is excluded from the party. That is the fatal consequence of energy-subsidy competition: It favors large firms and punishes small ones.

Not least of all, environmental protection is also hindered. In recent years, Spain invested heavily in wind and solar energy, and also built gas power plants. Because of their added capacity – and the fact that Spanish industry has shrunk, with 600,000 jobs lost during the crisis – Spain could send a great deal of favorably priced, wind-generated energy to France. That would benefit not only Spain, but also help protect the climate.

But now France is putting the brakes on upgrading linking stations between the nations’ networks. The official reasoning: Spain expanded too much, and that’s their problem. But the French network company that transports the electricity is a subsidiary of EDF – so it really isn’t interested in importing electricity that would hurt the parent company.

People often say that Europe doesn’t function properly. Not much will change in that regard as long as national governments do their best to obstruct a common market that is in the general interest — and that they themselves set up.

 

To contact the author: hanke@handelsblatt.com.

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