What German households pay for power

German household power prices have reached a record high in early 2017 while wholesale prices are sinking. But despite the fact that Germans pay among the highest per-unit rates in Europe, their support for the Energiewende – the shift to a low-carbon economy – is strong. This is partly because electricity spending as a share of disposable income has remained steady for years. [UPDATES data for BDEW household power prices updated to February 2017 figures; new Verivox, Check24 and Bitkom figures]

Components of the power price

More than half of the power price for households and small businesses in Germany consists of politically determined components. 55 percent of German household's power bills consist of charges for using power grids (about a fifth of the overall price), levies for other services and for financing investment in renewable energy (about a third) as well as two kinds of taxes (about a quarter). The power price and the supplier’s margin (about a quarter) are set by market arrangements. Commercial customers are exempt from some components of the power price. Some levies vary according to the consumer's location.

While the state directly and indirectly sets more than half of the price, it only receives revenues from the two taxes and the concession levy. The other levies go to grid operators, renewable power producers and some conventional power generators.

Figure 1| Composition of power price for households in 2016 (left) and 2017 (right). Data: BDEW, 2017.

In February 2017, household power prices were on average comprised of:

Cost of power for supplier (19.3 %)

The profit margin and supplier’s cost of purchasing wholesale power on the market, some 5.63 cents/kilowatt hour (kWh).

Grid charges (25.7 %)

Charges for the use of the power grid, set by the federal grid regulator, some 7.01 cents/kWh.

Renewable energy surcharge (23.6 %)

The renewable energy surcharge pays the state-guaranteed price for renewable energy to producers and rose to 6.88 cents/kWh in 2017. [For further background on the renewable surcharge, read the CLEW Factsheet  on Defining features of Germany’s Renewable Energy Act and the Green Energy Account]

Sales tax (value-added tax) (16 %)

The sales tax is 19 percent on the pretax price of electricity and makes up 16 percent of the after-tax price, some 4.6 cents/kWh.

Electricity tax (7 %)

A tax on the use of power, in Germany also called “ecological tax,” some 2.05 cents/kWh.

Concession levy (5.7 %)

A levy on the use of public space for power lines that the utility passes on to the consumer, some 1.66 cents/kWh, depending on the size of the locality.

Levy for offshore liabilities (0.1 %)

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. Due to higher chargebacks from previous years, the levy turned negative in 2017 and now stands at some -0.02 cents.

Surcharge for combined heat and power plants (1.5 %)

Operators of combined heat and power (CHP) plants receive a guaranteed price on the electricity they sell. The difference between the guarantee and the price they receive on the market is financed through this surcharge, some 0.43 cents/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 amongst consumers via this levy, amounting to around 0.388 cent/kWh. 

Prices rise again after first drop in years

The power price for a family of three with an annual consumption of 3,500 kWh are 68 percent above 1998 levels. That is partly due to the surcharge for renewable energy, which rose more than tenfold in the period, increasing its share in the power price from 1 percent to almost 24 percent. The surcharge is the difference between the wholesale price and the higher, fixed price for green energy, guaranteed by law to renewable power producers. Grid operators pass on the difference to consumers. In contrast to high-volume commercial customers, households are required to pay all levies and taxes.

In 2015, consumer prices eased for the first time in years. This was due to a decline in the renewable energy surcharge, which edged down for the first time since its introduction in 2000, from 6.24 cents in 2014 to 6.17 cents per kWh in the following year. But since 2016, it is again on the rise, currently standing at to 6.88 cents. Consumer prices too have since been brought back to previous levels, reaching a new peak of 29.16 cents/kWh in 2017.

Even as wholesale prices dropped in recent years, electricity providers were slow to pass these price cuts on to retail customers. In 2015, some companies had begun to do so. However, according to Verivox, an average household using 4,000 kilowatts a year had to pay about 1 percent more in early 2017 than one year before. As price increases varied considerably among suppliers, the site urged consumers to switch their suppliers in order to cut bills. For the average 4-person-household, annual prices could vary by as much as almost 470 euros, Verivox said

Verivox explained that about a third (251) companies in Germany had announced price hikes of on average 3.5 percent in 2017, while 16 suppliers wanted to cut prices by on average 2.2 percent. Based on the suppliers' behaviour in previous years, the price comparison website expected "a second price wave" to take place in the spring of 2017.

Figure 2| Composition of average household power price 2006 - 2017. Source - BDEW, 2017.

Many customers unaware of their power costs

Despite being certain to see further price hikes, a stable majority of Germans support the Energiewende and consider it generally beneficial for the economy. A possible explanation would be that electricity consumed only 2.3 percent of households’ disposable income in 2015, up from 1.78 percent in 1998 and back to mid-1980s levels, before the liberalisation of the power market in 1998 lowered prices.

Nevertheless, household power prices have been among the highest in Europe for at least five years in nominal terms. One way of reducing electricity bills is to negotiate new contracts or switch providers. The increased competition, in turn, also compels providers to cut prices. 

However, researchers have noted a certain inertia among consumers. More than half stick to their long-term suppliers and old contracts even though cheaper options are available, Check24 reported. There are enormous price differences between these, sometimes as much as 20-30 percent.

Surprisingly, most people in Germany do not know how much they actually pay for their electricity supply. In a survey by the Federal Association for Information Technology (Bitkom), 92 percent of respondents said power consumption was an important factor when buying new household appliances - but almost half (49 percent) of respondents also said they did not know their annual power consumption and 37 percent had no idea how much they paid for it.

Germans respond by saving energy

Monthly energy costs, which include heating, electricity and petrol, amounted to almost 280 euros in 2014 for an average German 3-person household, according to the Renewable Energies Agency (AEE). Petrol had the biggest share, followed by heating. Costs for power amounted to 85 euros. Figure 3| Monthly energy costs of a 3-person household in 2014. Source: AEE, 2015.

Trademark German efficiency is also one way Germans cope with their energy bills. Like industry, German consumers have turned to savings strategies, like buying energy efficient appliances or switching to low-energy light bulbs. Over 20 years, German households reduced their power usage by 10 percent, while consumption in the United States increased by 20 percent. A German household in 2014 used less than a third of the power of an equivalent household in the US, and also less than other major industrial countries in Europe such as France, Britain and Spain.

Figure 4| Comparison of average household electricity bills in EUR/yr. Source: Agora Energiewende/EI New Energy, Vol. III, No. 28.

*Like the Clean Energy Wire, Agora Energiewende is a project funded by Stiftung Mercator and the European Climate Foundation.

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