12 Nov 2014, 00:00
Ruby Russell

Many German households to get cheaper power for first time in years

After more than a decade of rising electricity prices, German utilities are passing on some of their savings from lower wholesale prices and a cut in the renewable energy surcharge. But with a number of government decisions on the next steps of the Energiewende – the transition to a low-carbon economy – looming, a clear downward trend is far from certain.

The price comparison website announced on 11 November that eight million German households can expect lower electricity bills in 2015, as utilities pass on savings from falling wholesale power prices, as well as a cut in the surcharge that subsidises renewable energy development.

According to Check24, the average household will see electricity bills reduced by 2.4 percent – not a huge sum in itself, but the first cut in power prices for many in more than a decade.

“Last year saw the first couple of utilities not rising their price – or even actually lowering them – even though the surcharge rose that year. So it’s something that’s happening on the market more,” said Tobias Kurth, senior manager at Energy Brainpool, an energy market consultancy in Berlin. “Now that the surcharge has actually gone down a little bit, there is more room to lower prices.”

Check24 said that more than 30 utilities across the country had announced lower prices for next year, and more could join them as the 20 November deadline to revise tariffs for the start of 2015 approaches.

EnBW, one of German’s biggest utilities announced at the end of October that the majority of its customers will see a reduction of around 1.4 per cent on their energy bills next year, the first reduction on EnBW’s prices since 1999.

Asked if they plan to follow EnBW’s lead, the other utilities that make up Germany’s big four electricity providers – RWE, E.on and Vattenfall – told the Clean Energy Wire that their prices for 2015 were yet to be finalised. But RWE added that two of its smaller majority-owned subsidies – enviaM in Chemnitz and LEW in Augsburg – have already announced a cut in their prices by 0.5 eurocents per kilowatt hour.

RWE spokesperson Wolfgang Schley said that the reduced costs of “the EEG levy and the purchase of the electricity from the wholesale market” were behind the move. Schley added that the parent company and its other subsidiaries were still in the process of calculating their tariffs for 2015, with a decision expected later this month.

Germany’s energy transition – the plan to phase out nuclear power and at the same time cut carbon emissions by increasing the share of renewables in the energy mix – has met scepticism abroad, frequently focused on cost of developing renewable energy sources, which has been subsidised by the “EEG surcharge” added to consumer power bills per kilowatt hour.

Grid operators announced last month that the surcharge will fall by 1.1 per cent in 2015, the first reduction since the levy was introduced in 2000.

The price per kilowatt hour for typical household of three is around 70 percent higher than in 1998 and German consumers are paying one of the highest prices per unit in Europe.

Meanwhile, renewable power generation has expanded to cover more than 25 percent of the country’s electricity consumption. Because renewable power doesn’t rely on expensive fuel and has very low production costs, the growing share of renewables in the energy mix has seen wholesale energy prices fall over recent years.

But the price consumers ultimately pay is a complex calculation based on factors such as the speed of the grid and various taxes and levies, of which the EEG surcharge is the largest. While some customers – mainly in energy-intensive industry – are exempt from most of these additional charges, or pay at a reduced rate, private households and other businesses have seen their electricity bills rise year on year. Some say this is likely to continue.

“I think with the reduction of wholesale prices and no increase in the EEG surcharge, every electricity supplier has to look at their cost base and some might take the opportunity to reduce prices to consumers,” said Matthias Lang, a partner at the law firm Bird & Bird who specialises in energy and environmental law. “But I am doubtful this will be a trend because state-induced elements in electricity prices are extremely high.”

Still, Kurth said utilities could be set to offer their customers better deals. One reason is that that energy providers are bound to future contracts – normally of three years – with power generators, a number of which are coming to end, allowing utilities to review their prices and pass savings on.

Consumer pressure might also play a role – even though most Germans have been sticking to the same energy supplier regardless of price. Research by Energy Brainpool, which is also one of the analysts involved in calculating the EEG surcharge on behalf of grid operators, found that the biggest utilities retained customers despite being generally more expensive than their competitors.

Kurth said this points to lack of public concern over energy prices. But an increasingly public debate over the issue in the German media is beginning to make people more aware of how much they are paying, and at times, switch supplier as a result.

At the same time, Kurth said that a current surplus of production capacity is likely to keep wholesale prices down and the first subsidies for renewable energy will be coming to an end soon.

“We won’t build as many new installations as we have done over recent years, and also the main impact for the EEG surcharge is not from newly installed systems (which are more cost-efficient) but old systems, and we will soon see the first old systems going out as their 20 years come to an end,” Kurth said.

Talking to the Tagesspiegel this week, Jochen Homann, head of the German grid regulator (Bundesnetzagentur), said that the cost of improvements to the grid and compensating for fluctuating renewable energy supply meant he didn’t expect consumer electricity prices to fall, but “at least the dynamic of rising prices has been broken.”

Ultimately, much will depend on how Germany opts to restructure its power market – an issue currently being debated by government. If capacity markets are introduced to ensure there is enough fossil fuel-fired power to compensate for fluctuating renewable energy supply, consumers could see further subsidies added to their bills, while some warn that not doing so would lead to skyrocketing electricity prices at times of scarcity.

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