No location is as vulnerable as Germany when it comes to energy

Caught between dependence on Russia and high overall consumption

28 June 2022, Munich. Germany is becoming an island of high prices as regards electricity. Due to these price disadvantages and the high risks associated with importing energy, the country is becoming less competitive. As a location for business, the country is becoming extremely unattractive, particularly for energy-intensive industries.

These are the three findings of a new price and risk analysis by the Foundation for Family Businesses. It was prepared by the ZEW – Leibniz Centre for European Economic Research in Mannheim. For this purpose, it used the toolbox of the “Country Index for Family Businesses”, which is regularly compiled for 21 countries under the direction of Professor Friedrich Heinemann (ZEW).

Consequences for competitiveness

“Since the outbreak of war in Ukraine, some researchers have tried to assess the consequences of an embargo or if Russia stopped supplying energy. Our study now shows how vulnerable Germany was even before the war began. Overseas competitors are not facing any problems. And competitors in Europe can restructure more quickly due to lower consumption volumes. Politicians should face up to the consequences for the competitiveness of German family businesses and take action”, said Professor Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses.

The study “The energy crisis across locations: price effects and import risks” looks at 16 EU countries as well as the USA, Canada, Japan, the UK and Switzerland. On the one hand, it analyses the effects on the price of electricity that were already measurable by the first quarter of 2022 (source: Global Petrol Prices). On the other, it measures the dependency on energy imports from unreliable supplier countries – particularly from the Russian sphere of influence – for the years 2018 to 2020.

Price effects limited to European locations

“The energy crisis is only having an effect on the price of electricity and gas in European locations”, notes Professor Heinemann. “There are also striking differences across Europe. Together with the Netherlands, Germany is increasingly becoming an island of high prices.”

Professor Heinemann comments on the second part of his study as follows: “The analysis of energy import risks leads to an extremely differentiated picture, which also results in an unfavourable assessment of the German location. Compared to the G7, Germany and Italy are particularly vulnerable to a further escalation of the energy crisis.”

The risks around gas particularly high for Germany

This second part of the study looks at the countries dependencies on imports as regards the energy sources gas, oil and coal using figures from Eurostat and the International Energy Agency and calculates an overall import risk. Germany is particularly vulnerable because the risks associated with gas are particularly high (especially in what the study refers to as the Russia scenario) and the share of gas at risk accounts for 40 per cent of total gross domestic consumption. Smaller countries in Eastern Europe may face even greater risk in some cases, but they can procure the smaller quantities more easily elsewhere on the world market. In contrast, the risk in the USA, Japan and Canada appears to be non-existent despite their high energy consumption because they have reliable suppliers.

Metal production sector exhibits significant risk

In a further section, the study analyses how susceptible individual sectors in Germany are to shocks when it comes to energy – also to enable family businesses to make a comparison with the average. The highest risks are therefore in the metal production and processing, chemicals and paper and cardboard sectors. The authors write that economic and energy policy must find answers to the question of how Germany can remain competitive for energy-intensive companies.

Teaser picture: Large natural gas generators in a power generation plant. © danishkhan / istock

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