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ENERGY

EXPLAINED: How customers in Germany can tackle rising electricity bills

Gas customers aren't the only ones who are set to bear the brunt of rising energy costs - electricity bills are also on the rise in Germany. Here's what to know about the latest price hikes and what you can do about them.

Phone charger electricity
A man plugs in a phone charger in a multi-socket adapter. Photo: picture alliance/dpa | Monika Skolimowska

Gas has been the focus of many people’s worries for the coming winter, but almost unnoticed, electricity prices have been creeping up too. According to the latest estimates by price comparison sites and announcements by electricity suppliers, customers could be in for a nasty shock in the coming weeks and months. 

How are electricity prices developing?

They’ve risen sharply. The comparison portal Verivox shows the average electricity price for private consumers in Germany in an index. According to this index, the price for an annual consumption of 4000 kilowatt hours for a model household was 41.98 cents per kilowatt hour in August, which corresponds to an increase of 38 percent compared to the same month last year. Meanwhile, price comparison portal Check24 reports an increase of around 31 percent in the same period. According to this calculation, the average price of electricity currently stands at 39.9 cents.

Why are electricity prices also going up?

“The big price driver is the price of natural gas,” energy expert Udo Sieverding of the NRW consumer advice centre told DPA. Gas prices have risen mainly because Russia, Germany’s most important supplier, has slashed its deliveries to Germany by around 80 percent. In addition, according to Sieverding, there are, for example, the increased world market prices for coal and increased CO2 prices, which make electricity production more expensive.

READ ALSO: 8 simple ways you can save on heating costs in Germany

What price increases can be expected, and when will they reach the end customers?

Verivox counted 123 price increases from basic suppliers for August, September and October, with an average increase of 25 percent. For a three-person household with a consumption of 4,000 kilowatt hours, this means average additional costs of €311 per year. Previously, the competitor Check24 had already reported a price increase of 47.4 percent in September.

“In view of the high wholesale prices, we expect numerous electricity price increases in the coming months, which will be an additional burden for households,” says Verivox expert Thorsten Storck. The average electricity price could be 45 cents per kilowatt hour or more in the coming year. Sieverding also expects prices to rise. “We have to assume that prices will rise to over 40 cents.” The end of the line, he says, has not yet been reached.

What are the big energy suppliers doing?

Germany’s largest energy supplier, Eon, expects prices for end customers to continue rising.

Price pressure prevails in all markets, CFO Marc Spieker said last week, adding: “The only thing that differs is how quickly these price increases are then implemented.”

There is no question that they will have to come in the end, he said. Electricity customers of the energy supplier EnBW, for example, will have to pay an average of 31.1 percent more for their household electricity in the basic supply tariff from October.

What could drive the price of electricity even higher?

The last three nuclear power plants in Germany are to be shut down at the end of the year. Accordingly, there would then be a shortage of electricity from the reactors. According to Sieverding, this could cause prices to go up yet again. Now Germany is feeling the full force of the consequences of “dragging its feet on the expansion of renewable energies”, he said. 

Electricity metre

An electricity metre. Photo: picture alliance/dpa | Bernd Weißbrod

Is the government doing anything to ease the burden?

Since July, electricity customers no longer have to pay the Renewable Energy Act (EEG) levy, with the funding for green energy projects now coming directly from the state.

However, the abolition of the EEG levy has only dampened the rise in electricity prices slightly, says Storck. Further relief could come from a reduction in value-added tax on electricity, which the energy industry, for example, is demanding. So far, the federal government has only announced this measure for gas bills, which will be subject to seven percent rather than 19 percent VAT until March 31st, 2022.

READ ALSO: German electricity prices to soar by 25 percent on average

What can consumers do?

Unlike with gas, there are many individual electricity consumers in a household, says consumer advocate Sieverding. Electricity guzzlers such as old refrigerators, washing machines or halogen lamps should be replaced as soon as possible. An old heating pump can also help save energy. 

The consumer advice centre offers electricity-saving tips on its website. For example, you can make your refrigerator a little less cold or defrost an iced-up freezer. You can use a lid when cooking and frying, and when using the oven you can avoid preheating it and switch it off a little earlier. And of course: switch off the light whenever you leave a room. 

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ENERGY

How electricity prices are rising across Germany

As the year draws to an end, price comparison portals have observed huge spikes in electricity costs across Germany - though the scale of the price hikes vary across different regions.

How electricity prices are rising across Germany

According to analysis carried out by comparison portal Check24, there were at least 580 cases of price increases in the basic electricity supply at the beginning of the year, with around 7.3 million households affected.

Electricity costs increased by an average of 60 percent, the analysis found, though in some cases were much higher. In the case of the Cologne-based supplier Rheinenergie, a kilowatt hour of electricity has gone up to 55 cents – 130 percent higher than the previous price. 

Comparison portal Verifox, which conducted its own analysis, found that prices were rising by an average of 54 percent across the board. 

“The new year is beginning with a massive wave of price increases for electricity,” said Verifox energy expert Thorsten Storck.

Analysts also noted strong regional differences in the scale of the price increases, with Munich and Cologne topping the list for the most expensive electricity. 

In Munich, a kilowatt hour of energy will cost 61.9 cents from January, compared to 55 cents in Cologne.

Meanwhile, MVV Energie in Mannheim, Baden-Württemberg, will charge almost 45 cents per kWh for its basic supply from January onwards – instead of the previous 27 cents. The East German energy supplier EnviaM, based in Chemnitz, will charge 48.1 cents in the future – 20.1 cents more than before.

In Potsdam in Brandenburg, the region supplier is raising its electricity prices by around 21 percent to 46.5 cents per kilowatt hour.

READ ALSO: ‘It’s going to be a bleak winter’: How people in Germany are coping with the energy crisis

Why are the prices so high? 

In a statement explaining the imminent jump in prices, Rheinenergie pointed to the huge increase in their procurement costs and other overheads.

“Compared to the previous year, prices on the electricity exchanges have risen by more than 300 percent,” they explained. “At their peak they had increased more than tenfold. In addition, the grid fees are also rising.” 

The extreme spike on the markets is yet another consequence of Russia’s invasion of Ukraine, which has sent the price of natural gas soaring.

An electricity pylon near a motorway in Lower Saxony.

An electricity pylon near a motorway in Lower Saxony. Photo: picture alliance/dpa | Moritz Frankenberg

Though gas isn’t the only component involved in producing electricity – much cheaper renewables also account for a decent portion of Germany’s supply – it does have a significant impact on prices. That’s because of something known the “merit order,” in which the most expensive gas-fired plant used to produce electricity is decisive in setting the cost.  

READ ALSO: Germany’s Scholz dims lights on Christmas tree amid energy squeeze

What can customers do?

How to handle the latest wave of price increases may in part depend on who your current supplier is.

According to Udo Sieverding, an energy expert at the North Rhine-Westphalia consumer advice centre, people using a private supplier should consider whether it would make more sense to fall back on the so-called “basic supply.” 

“Customers outside the basic supply should even consider making use of the special right of termination in case of price increases and let themselves fall into the basic supply,” he said. 

The basic supply – or Grundversorgung – is generally provided to people who don’t set up their own electricity or energy contract with another supplier. Prices are set on a regional level and used to be considered expensive, but in recent months they have generally slipped below the rates offered by private companies. 

For people already using the basic supply, the situation is a bit trickier.

“The electricity price increases at the turn of the year are in part drastic,” said Sieverding. “Unfortunately, the new customer tariffs via the intermediary portals are even higher, which means that a change of supplier won’t lead to savings in most tariff areas.”

That means it could make sense to sit tight for now and accept the higher prices, but keep an eye on any deals that could be offered in the coming months. 

READ ALSO: EXPLAINED: How to save money on your German electricity bill

Will electricity stay this expensive in the future? 

Energy prices were rising dramatically even before Russia’s war on Ukraine – in part due to pandemic supply issues – and experts don’t think they’re set to drop anytime soon. 

According to analysis by Check24, a sample household with an annual consumption of 5000 kWh paid an average of 29.4 cents per kWh in November 2020. One year later, it was 31.6 cents. Currently, the average is 42.7 cents.

Apartments in Lower Saxony

A few apartments are lit up in a tower block in Lower Saxony. Photo: picture alliance/dpa | Julian Stratenschulte

Electricity market expert Mirko Schlossarczyk, who works for consultancy firm Enervis, said 40 cents per kilowatt-hour was likely to be the new normal in 2023 and 2024, and that prices could even rise to 50 cents per kilowatt-hour after that. 

Although wholesale electricity prices could fall again significantly in the future, as a result of a prospective drop in gas prices and the increased expansion of renewable energies – the noticeably larger share of the end customer price would be accounted for by levies, surcharges, fees, and taxes, Schlossarczyk said.

“We will not see a return to 32 cents (the pre-war price) in the coming years simply because of the comparatively high wholesale electricity price level and the already announced increases in grid fees,” he added. 

But isn’t there supposed to be a price cap coming?

That’s right: from March 2023, the government plans to introduce a cap on electricity prices that will apply retrospectively from January.

However, this still won’t take electricity bills back to pre-war levels. Instead, 80 percent of a household’s normal electricity consumption will be capped at a price of 40 cents per kilowatt hour, while any excess over this will be billed at ordinary market prices.

That is likely to mean that households that don’t reduce their consumption by at least 20 percent still face much higher bills, and even those that do will pay an average of eight cents more for a kilowatt hour of electricity than they were in 2021. 

READ ALSO: Germany plans to cap energy prices from start of 2023

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