What German households pay for power

Power prices in Germany are among the highest in Europe – but many customers continue to support the switch to renewable energy sources regardless. While wholesale electricity prices have on average been declining in recent years, surcharges, taxes, and grid fees raise the bill for German households. But even a decline in these price components in 2018 does not result in lower prices for many households, which market observers trace back to customers’ inertia when it comes to changing power providers. [UPDATE June 2018: Inserts new EU graph with prices for 2nd half of 2017]

Power price components

Politically determined components of the power price account for more than half of what Germany’s households and small businesses pay. Despite a slight decrease in early 2018, taxes, levies, and surcharges accounted for more than 54 percent of a total power price of 29.42 eurocents per kilowatt hour (ct/kWh). Almost a quarter of the price (24.7 percent) is down to regulated grid fees, which include metering and associated services. Just slightly over a fifth (21.0 percent) is set by the market, meaning the costs accruing from power supply and distribution that make up the wholesale power price and include the supplier’s margin.

Commercial customers are exempt from certain components of the power price. 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 power generators.

 BDEW, 2018.

Supplier’s cost (21 %)

The profit margin and supplier’s cost of purchasing power on the wholesale market - 6.18 ct/kWh.

Grid charges (24.7 %)

Charges for the use of the power grid, set by the Federal Network Agency (BNetzA) - 7.27 ct/kWh.

Renewable energy surcharge (23.1 %)

The renewable energy surcharge (EEG-Umlage) pays the state-guaranteed price for renewable energy to producers. It rose to 6.79 ct/kWh in 2018. [For further background on the renewable surcharge, read the CLEW Factsheets Defining features of Germany’s Renewable Energy Act and Green Energy Account]

Sales (value-added) tax (16 %)

The sales tax is 19 percent on the pre-tax price of electricity. It makes up 16 percent of the price after tax - 4.7 ct/kWh.

Electricity tax (7 %)

A tax on the consumption of power, also known as ’ecological tax‘ in Germany - 2.05 ct/kWh.

Concession levy (5.6 %)

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 (0.1 %)

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. At the beginning of 2018, it amounted to 0.037 ct/kWh.

Surcharge for combined heat and power plants (1.2 %)

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 - 0.34 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 0.37 ct/kWh.

Lower wholesale prices not passed on to consumers

In 2018, the monthly energy bill for an average German household consisting of three people with a combined annual consumption of 3,500 kWh is 85.8 euros, the BDEW says. This is about 32 percent above the level of 1998 if adjusted for inflation, and 72 percent higher in nominal terms. While the share of supply, distribution, and grid fees in the price fell by 21 percent if inflation is taken into account, that of taxes, levies, and surcharges grew by 202 percent. This is partly due to a substantial increase in the renewable energy surcharge, up from 0.08 ct/kWh in 1998 to 6.79 ct/kWh in 2018.

The renewables surcharge now accounts for just over 23 percent 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 all levies and taxes. According to the BDEW, in 2018 households will be liable to pay 8.6 billion euros out of the total 24 billion euros renewables surcharge. This means private customers foot more than a third of the country's power bill - while they consume less then a quarter, as figures by the German Environment Agency (UBA) show

In early 2018, the average power price was slightly (0.5 percent) higher than at the same time last year, and it has been rising constantly since 2000 – except for 2015, when it dropped temporarily. This was due to a decline in the renewable energy surcharge, the first since its introduction.

The surcharge decreased again in early 2018, from 6.88 ct/kWh in 2017 to 6.79 ct/kWh, and grid fees also dropped by 0.24 ct/kWh on average. However, power prices for households did not fall accordingly. The price comparison website Verivox says that most providers decided against reducing their costs despite the lower renewables surcharge and grid fees.

BDEW head Stefan Kapferer has argued that the providers’ margin was too small to allow for reductions, as more than half of the electricity costs were determined by the state. But, according to Verivox, many providers even increase their prices in 2018, while major utilities like innogy, E.ON, Vattenfall, or EnBW keep them stable.

Even though wholesale energy prices in Germany have on average declined in recent years, power providers were reluctant to pass these price reductions on to customers. “Power providers would use any argument to justify price increases or to prevent lower prices,” says Udo Sieverding of the consumer association of North Rhine-Westphalia (NRW).

Sieverding also argues that customers could save money by routinely comparing prices and changing their contracts accordingly. The BDEW says that 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.

However, researchers have noted a certain inertia among consumers. More than half of them stick to their long-term suppliers and existing contracts, even though cheaper options are available, price comparison website Check24 reported. The price differences between these can be substantial, sometimes reaching 20-30 percent.

Many customers unaware of their power costs

While further power price hikes are quite likely in Germany, a stable majority of Germans support the Energiewende and consider it generally beneficial for the economy.

A possible explanation would be that people the financial impact of rising power prices on customers' budgets is not substantial. In 2015, only 2.3 percent of the households’ disposable income was spent on electricity. In 1998, the respective figure was 1.78 percent. It thus reverted to mid-1980s levels, before the liberalisation of  energy markets led to a price drop.

Nevertheless, in nominal terms, power price levels in Germany have been the highest in Europe in 2017. According to the Federal Ministry for Economic Affairs and Energy (BMWi), they were on par with prices in Denmark, making both countries the most expensive for power consumers in Europe. According to Eurostat, household power prices in Germany were the EU's highest in the second half of 2017 (see graph).

 Eurostat (2018)

Surprisingly, most people in Germany do not even know how much they actually spend on electricity. In a 2017 survey conducted by the Federal Association for Information Technology (Bitkom), 92 percent of the 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 down

The BMWi says that energy costs, which include heating, electricity, and petrol, stood at 223 euros per month for the average German household in 2016, down from 262 euros in 2013. The latest figure corresponds to 6.4 percent of total household expenditures. Petrol and other fuels accounted for the biggest share, followed by heating. Energy costs ranked third.

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.

All texts created by the Clean Energy Wire are available under a “Creative Commons Attribution 4.0 International Licence (CC BY 4.0)” . They can be copied, shared and made publicly accessible by users so long as they give appropriate credit, provide a link to the license, and indicate if changes were made.


Kerstine Appunn

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