By Julianne Geiger of OilPrice.com

Germany has agreed to subsidize electricity for its heavy industries, capping prices at about €0.05 per kilowatt-hour from 2026 through 2028—a major policy move aimed at keeping its industrial base from eroding under the weight of Europe’s soaring energy costs.

Chancellor Friedrich Merz said Thursday that Berlin’s coalition partners reached the deal after months of debate, and that discussions with the European Commission for approval were “largely complete.”

The measure will target energy-intensive industries such as steel, chemicals, and automaking—sectors that have warned repeatedly they cannot compete globally with power costs nearly double those in the U.S.

Germany’s power market is the largest in Europe, consuming roughly 500 terawatt-hours annually, and it’s been under severe pressure. Since the 2022 energy crisis, power prices have remained volatile—spiking again this fall as renewable generation faltered and gas-fired output surged to its highest level since 2021. Low wind speeds, weak hydro output, and grid bottlenecks forced Germany to burn more natural gas and coal to stabilize supply.

Those dynamics have made energy security a central political issue. Forecasts of a cold winter have already driven German power futures near €100 per megawatt-hour, reigniting public anger over industrial competitiveness and household affordability.

Industry groups say the temporary subsidy is essential to prevent production from shifting overseas. But critics warn it only papers over deeper structural problems—aging infrastructure, slow permitting, and unreliable renewable output—that have left Germany dependent on fossil fuels despite its ambitious climate targets.

Berlin hopes the three-year relief period will buy time to expand grid capacity and add flexible generation, but analysts say unless those projects materialize quickly, the country could face another round of industrial contraction by the decade’s end.

For Europe’s industrial heartland, the price of power has become the price of survival.