German wholesale power prices to rise steeply before falling from 2024 - report
Wholesale electricity prices in Germany will be significantly higher in the next few years than they were during the 2019-2020 period due to the country’s energy mix and their continued dependence on gas prices, according to a new report by Swiss research centre Prognos carried out on behalf of the Bavarian Industry Association (VBW). Prognos examined a number of scenarios based on factors that are expected to affect future electricity prices, including the availability of Russian gas, renewable energy sources and the use of hydrogen. Prices will fall from 2024 onwards, but they will remain higher than before in the medium and long term, the report predicts. In the event of an abrupt halt to the supply of Russian gas, the average electricity price will rise to over 500 euros per megawatt hour (MWh) in 2023 due to high gas prices and then drop significantly again through 2028, the report forecasts. By 2030 the price is expected to reach 98 euros per MWh and then drop to around 80 euros per MWh by 2040.
The report stresses that an increased expansion of renewable energy sources would have a lowering effect on the level of electricity prices. Electricity prices can also be reduced through making electricity consumption more flexible via demand-side management. Hydrogen power generation, however, will lead to even higher prices in the medium term, according to Prognos. Hydrogen power plants are expected to ensure security of supply by covering peak loads in a climate-neutral energy system. If the use of hydrogen was reflected in wholesale electricity prices, it would result in a significant increase in electricity prices from 2028 to 160 euros through the end of the 2030s. Hydrogen costs should therefore not be refinanced via the electricity market, but rather through other financing instruments, the report says.
High energy prices have become a growing concern for households and businesses since late 2021, when the economic recovery from the pandemic triggered supply bottlenecks. The situation was then gravely exacerbated by Russia's attack on Ukraine. While fears of gas shortages absorb most of the attention as the heating season draws nearer, high power prices could also significantly add to the cost of living crisis.