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Chemicals and the German Green Electricity Act

The reform of the German Green Electricity Act has far-reaching impacts on the chemical industry in Germany.

In the summer of 2014, the European Union (EU) raised concerns regarding the reform of the German Green Electricity Act (GGE). The energy-intense industries across Germany were shocked, as reported in the German Handelsblatt1 and other news media. After months of vigorous but fruitful negotiations with the EU, German representatives received unexpected demands to make substantial changes to the GGE, which would have resulted in significant additional costs for energy-intense industries including chemicals.

The demands included reducing subsidies connected to self-generation of power. In particular, fees for existing plants would have increased significantly, which in turn would heavily impact the global competitive position of German industries. Major players and industry associations articulated their concerns about the consequences for German chemical companies.

Fortunately, a solution was eventually applied that did not impact the energy-intense industries as much as originally projected. However it shows what the chemical industry still has on its agenda today—margins. With the global economy continuing to suffer from repercussions of the global financial crisis, and both energy prices and general production costs in Germany continuing to be high, chemical companies are fighting to sustain their margins in order to meet shareholder expectations.

In order to stay competitive, chemical businesses in Germany must implement solutions that not only improve their cost position, but also help them outpace their competitors by better understanding the market environment. The Internet of Things (IoT) provides an answer with many practical applications, such as predictive maintenance and analytics.

With the increasing digitalization of chemical plants and entire supply chains, tremendous improvements in terms of transparency, responsiveness and automation are possible by utilizing big data. Companies are able to identify previously unknown correlations in their operations and steer critical business processes on a completely new level, all while leveraging insights generated through analytics.

A key building block to realize this potential is custom business analytics solutions that link information from various data silos into one platform and provide an effective processing and reporting capability. This can lead to significant improvements in managerial decision making because data and reporting on major performance indicators are available real-time, thereby allowing decisions to be based on actual insights instead of assumptions.

But the advantages go beyond improved transparency and reporting. Sophisticated analyses help make it possible for chemical companies to predict critical process interruptions and provide the basis for improved risk management and mitigation. Production downtimes can be reduced and, consequently, cost-intensive failures can be avoided. Thus, not only can the overall equipment effectiveness (OEE) be sustainably improved, but ripple effects across the supply chain can be avoided.

Along with industry-specific country legislation, these levers will be critical to chemical companies in Germany looking to sustain and improve their competitive position in a market environment that is characterized by high costs for labor, energy and raw materials.

1"Achtung, Unternehmer – jetzt wird es teuer," Handelsblatt, June 24, 2014, http://www.handelsblatt.com/politik/deutschland/oekostrom-reform-achtung-unternehmer-jetzt-wird-es-teuer/10092722.html.

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