Power prices in Germany are among the highest in Europe. Though the high costs are in large part due to the mandatory support for renewable energy sources, most customers continue to support the country’s energy transition. That might be because German households only pay a little over 9% of their average monthly income on energy, similar to France and the Netherlands. In contrast, Bulgarian households spend more than 25% percent on electricity, gas and petrol. Greeks and Hungarians share second place at 20%. Ellen Thalman and Benjamin Wehrmann at Clean Energy Wire take a close look at what German households pay for power, breaking down the energy costs, surcharges, taxes, and grid fees. It’s a useful insight into “climate leader” Germany’s pricing mechanisms for consumers as, ultimately, the future of each nation’s transition depends on how it’s paid for.
Power price components
The average power price for households and small businesses in Germany stood at 32.16 cents per kilowatt hour (ct/kWh) in 2021, according to an analysis by the German Association of Energy and Water Industries (BDEW). More than half of the price was due to politically determined components, such as taxes, levies, and surcharges.
About one quarter of the 2021 price (7.8 ct/kWh) resulted from regulated grid fees, which include metering and associated services. Another 7.9 cents were set by the market, meaning the costs accruing from power supply and distribution that also make up the wholesale power price and include the supplier’s margin.
Commercial customers are exempt from certain components of the power price and some levies vary according to the consumer’s location. While the state directly or indirectly sets more than half of the price, it receives revenues from the two taxes and the concession levy only. The other levies go to grid operators, renewable power producers, and conventional electricity producers.
The renewable energy surcharge (EEG-Umlage) pays the state-guaranteed price for renewable energy to producers. It stood at 6.5 ct/kWh in 2021 but will be reduced to 3.72 ct/kWh in 2022, the country’s transmission grid operators announced. The surcharge’s reduction has been promised in the context of Germany’s carbon pricing system in heating and transport, introduced in 2021, to ease the financial burden on customers who have to pay more for fossil energy sources. A complete elimination of the surcharge has been pondered for some time and could be implemented in the next years. [For further background on the renewable surcharge, read the CLEW Factsheets Defining features of Germany’s Renewable Energy Act and Green Energy Account]
2021 price composition
Total price: 32.16 ct/kWh*
Supplier’s cost (24%)
The profit margin and supplier’s cost of purchasing power on the wholesale market – 7.93 ct/kWh
Grid charges (24%)
Charges for the use of the power grid, set by the Federal Network Agency (BNetzA) – 7.8 ct/kWh
Renewable energy surcharge (20%)
Sales tax (VAT) (16%)
The sales tax is 19 percent on the pre-tax price of electricity. It makes up 16 percent of the price after tax – 5.13 ct/kWh
Electricity tax (6%)
A tax on the consumption of power, also known as ’ecological tax‘ in Germany – 2.05 ct/kWh
Concession levy (5%)
A levy on the use of public space for power transmission lines that the utility passes on to the consumer – 1.66 ct/kWh, depending on the size of the affected area.
Offshore liability levy (0.03%)
Grid operators must pay damages if they fail to connect offshore wind farms in a timely manner in order to sell the power they produce. Operators can pass these costs on to consumers through this levy – 0.4 ct/kWh.
Surcharge for combined heat and power plants (0.08%)
Operators of combined heat and power (CHP) plants receive a guaranteed price on the electricity they sell. The difference between the guaranteed price and the actual price they receive on the market is financed through this surcharge – 0.25 ct/kWh.
Levy for industry rebate on grid fees (1.3%)
Large power consumers are partially or totally exempt from grid charges. These costs are distributed among consumers via this levy, amounting to 0.43 ct/kWh.
[*Difference to 100% due to rounding. Source: BDEW 2021]
Private customers pay 1/3 of country’s electricity bill but consume less than 1/4
In the first half of 2021, the monthly electricity bill for an average German household consisting of three people with a combined annual consumption of 3,500 kWh was 93.17 euros, the BDEW said. This is about 87 percent higher in nominal terms than the level of 1998. But the increase is much lower in real terms, just over 33 percent, meaning if the price is adjusted for inflation.
While the nominal price of supply, distribution, and grid fees grew by 19 percent since the reference year, that of taxes, levies, and surcharges grew by 303 percent. This is partly due to the substantial increase in the renewable energy surcharge, up from 0.08 ct/kWh in 1998 to 6.5 ct/kWh in 2021.
The renewables surcharge now accounts for one fifth of a household’s electricity bill. It corresponds to the difference between the wholesale price and the higher, fixed price for green energy, which is guaranteed by law to renewable power producers for 20 years. Grid operators pass on the difference to consumers. Unlike high-volume commercial customers, households are required to pay the full amount of levies and taxes.
According to the BDEW, households were liable to pay 8.2 billion euros out of the total 22.7 billion euros renewables surcharge in 2019. This means private customers footed more than a third of the country’s power bill – while they account for less than a quarter of consumption, as figures by the German Environment Agency (UBA) show.
After rising constantly since its introduction in the year 2000, the EEG surcharge decreased for a first time in 2015 and again in early 2018. In 2019, it dropped for a third time. However, household power prices did not mirror the renewable surcharge’s fluctuation. In early 2019, the average power price was 2.5 percent higher than one year before, which according to the BDEW was due to higher electricity acquisition costs for retailers on the wholesale market.
The renewables surcharge is being halved
In 2022, the surcharge will drop by almost half to 3.72 ct/kWh, which was seen as a much-needed respite for customers amid the energy price hike across Europe in the second half of 2021. The new levy would save an average three-person household with an annual power consumption of 4,000 kWh about 130 euros per year. However, high wholesale prices and rising grid fees may eat up potential savings for households, said price comparison website Verivox. Outgoing economy and energy minister Peter Altmaier in late 2021 called on the next government to continue working towards the end of the surcharge and pay the fixed remuneration for renewable power installations directly from the state’s budget.
…but grid fees are likely to rise
At the same time, higher grid fees are poised to increase the power bill for many households in 2022, with comparison website Verivox saying the average household’s costs for the fee will increase by 11 euros to 303 euros. This means that grid costs for customers will have increased by more than one third over ten years, Verivox added.
Reluctance to change provider for a cheaper deal…
Price comparison website Verivox says private customers paid the highest prices ever in late 2021, meaning Germany continues to be the country with the highest nominal power prices in Europe. And despite the reduced renewables surcharge lowering prices by about 11 percent, the high price level would likely continue to prevail also in 2022, Verivox adds.
Even though wholesale power prices in Germany have on average declined in recent years before picking up again in 2018 and the renewables surcharge was lowered in 2019, providers were reluctant to pass these reductions on to customers. According to consumer association Verbraucherzentrale of federal state North Rhine-Westphalia (NRW), power providers would use “any argument” to justify price increases or to prevent lower prices.
The Verbraucherzentrale says that customers could save money by routinely comparing prices and changing their contracts accordingly. German customers can choose from at least 20 different providers that cover the entire country, and from more than 50 providers that cater to 85 percent of all households, according to the BDEW.
However, there also seems to exist a certain inertia among German consumers. More than half of them stick to their long-term suppliers and existing contracts, even though cheaper options are available, a survey by the Federal Association for Information Technology (Bitkom) found. The price differences between these can be substantial, sometimes reaching 20-30 percent.
Comparison website Verivox says people in eastern Germany are especially reluctant to change their power provider, even though power prices there on average are 1.2 percent higher due to differences in grid fees. Households in western Germany changed their provider at a rate slightly above the national average, whereas eastern customers stayed far below it.
…and wasteful use inflates the power bill
Apart from switching providers, efficient use is another way people can save money on their power bills. In Germany, industries as well as private consumers have adopted savings strategies, like buying energy-efficient appliances or switching to low-energy light bulbs. Over the past 20 years, German households have reduced their energy consumption by 10 percent, while the respective rate in the United States increased by 20 percent. In 2014, an average German household used less than a third of the power of its US equivalent, and also less than an average household in other major industrialised countries in Europe, such as France, Britain, or Spain.
However, a 2019 analysis found that households still waste about 9 billion euros per year due to neglecting energy saving advices, like efficient use of appliances like washing machines or switching off standby functions. This would amount to roughly 570 euros in savings for an average 4-person household.
Real power prices range in European mid-table
Although in early 2019 they paid the highest nominal power prices of all customers in Europe, a stable majority of Germans continue to support the energy transition and consider it generally beneficial for the economy. A possible explanation for this carefree attitude is that the financial impact of rising power prices on the household budget is not substantial for many people, since it constitutes only a relatively small fraction of their total income.
If power prices are counted in real terms, the country actually ranks in the midfield compared to fellow EU states. In Bulgaria, for example, power prices are only one third of those in Germany. But not only are power outages much more common, Bulgarians on average also earn only one ninth of the average salary in Germany, newspaper Tageszeitung (taz) reported. In 2015, only 2.3 percent of the households’ disposable income was spent on electricity, similar to mid-1980s levels. In 1998, the respective figure was 1.78 percent, as the liberalisation of energy markets led to a temporary price drop.
Also regarding total energy bills, Germans spend a low share of income in EU comparisons, according to the German Economic Institute (IW). German households pay just over 9 percent of their average monthly income on energy, on par with consumers in neighbouring France and the Netherlands. In contrast, Bulgarian households spend more than 25 percent on electricity, gas and petrol. Greeks and Hungarians share second place at 20 percent. The share is lowest in Luxembourg with just 4 percent. The IW notes that its latest report is based on figures from the first half of the year, and therefore does not reflect the recent increases in gas prices.
Surprisingly, many people in Germany do not even know how much they actually spend on electricity at all. In a 2017 survey conducted by Bitkom, 92 percent of respondents said power consumption was an important consideration when buying new household appliances. At the same time, almost half (49 percent) of respondents said that they did not know their annual power consumption, and 37 percent had no idea how much they paid for it.
Total household energy costs in Germany, which include heating, electricity, and petrol were actually falling between 2013 and 2017, from over 260 to about 230 euros, according to economy ministry figures. This amounted to 6.4 percent of the average household’s expenditures. Petrol and other fuels accounted for the biggest share, followed by heating. Electricity costs ranked third.
Gas price hike in Europe upsets cost reduction plans
The rapid price hike on international energy markets in the global recovery of economic activity in the wake of the coronavirus pandemic has hit energy consumers in Germany and across Europe, leading to new price records and at least temporarily eating away cost reduction measures like the lowered renewables surcharge. At the same time, the CO2 pricing scheme for emissions in the heating and transport sector that was introduced in 2021 and will gradually rise over the coming years adds further pressure on households to manage their energy costs. While the price increase is particularly strong for oil and gas, electricity prices have also been spiking. About 17 percent of Germany’s electricity was provided by gas in the first half of 2021 and gas-fired power production looks set to assume an important bridging technology during the phase-out of coal and nuclear power.
The German government has opted for a cautious approach regarding market interventions and support payments, calling the price hike “a special market situation under free price formation,” adding that a key aim of the government nevertheless would be to ensure energy remains “affordable.” Besides short-term measures like heating allowances or commuter tax relief payments, the best way to counter power price hikes in the future would be to quickly expand renewable power production capacity, the government said.
Consumer protection organisation Verbraucherzentrale (vzbv) calculated that the higher prices will significantly increase the average household’s energy bill. In a flat of 100 square metres, consumers would pay about 980 instead of 770 euros per year for natural gas for heating and warm water. However, customers, of course, could influence the prices they pay by choosing cheaper providers or consuming less thanks to better insulated buildings, the organisation added.
Price comparison website Verivox calculated that retail prices for power providers on average increased by about 25 percent by October 2021 compared to one year before. Germany would therefore likely continue to have the highest power prices in Europe in 2022, unless a new government introduces drastic price reduction measures like a full abolition of the renewables surcharge.
Ellen Thalman writes for Clean Energy Wire
Benjamin Wehrmann is a staff Correspondent for Clean Energy Wire
The article is published under a “Creative Commons Attribution 4.0 International Licence (CC BY 4.0)”