Electricity price development: This is why our electricity is becoming more and more expensive

Rising electricity prices bring challenges for companies

In Germany, the price of electricity has more than doubled since the turn of the millennium. For a long time, it was mainly the high taxes and the EEG levy that drove the electricity price for consumers to new heights. Since the corona-related low in 2020, the pure procurement price for electricity has also risen from one all-time high to the next. This entails major challenges for companies, particularly in energy-intensive sectors.

Energy price development for companies – What are the current energy prices?

According to the Federal Association of Energy and Water Industries, the average electricity price in 2021, including the electricity tax for industrial electricity, was 21.39 cents per kilowatt hour (kWh) – and thus already 3.62 cents higher than in 2020.

in the January 2021 the price was already 26.64 cents per kWh and it can be assumed that prices will rise rather than fall.

Industrial customers with an annual power consumption of 160,000 to 20 million kWh of electricity were considered when determining the price.

Energy price development – What are the current energy prices?

According to the Federal Association of Energy and Water Industries, the average electricity price in 2021 including electricity tax for industrial electricity was 19.09 cents per kWh. When determining the price, industrial customers with an annual electricity consumption of 160,000 to 20 million kWh of electricity were considered.

The price of electricity on the exchange

In contrast to the end customer price, the electricity price on the exchange is priced per megawatt hour (MWh) and does not yet include any surcharges or levies, such as the one shown above retail price for business and industry.

The electricity prices on the exchange have risen continuously in recent years and, after a downward trend at the beginning of 2022, shot up due to current global political events.

Why are electricity prices in Germany so high?

The electricity market has been changing for a number of years – which is also affecting the development of electricity prices.

In addition, global political actions, such as the war in Ukraine and the associated sanctions against Russia, are currently playing a major role in energy prices.

The most predictable factors are the CO2 prices, the maximum prices for fuels such as gas and the absence of base load power plants.

Carbon prices play an important role

According to EHA Managing Director Dirk Mithöfer, one of the reasons for this is the sharp rise in CO2 prices for electricity generation. Unlike the recently introduced CO2 prices for heat and transport, the CO2 certificates in European emissions trading do not have a fixed price, but are traded freely. Since March 2020, the price for the certificates has more than quintupled and is thus having a strong effect on electricity prices.

All-time high gas prices

Other factors include historic high prices for fuels such as gas. Due to an unusually long winter, low gas storage levels in Germany and high global demand, the gas price in futures trading has more than quintupled.

Because of these extreme prices, more and more coal-fired power plants were used to generate electricity (“gas-to-coal switch”) because their generation is comparatively cheaper. Nevertheless, gas-fired power plants are often required to fully cover the electricity demand. Since the price on the electricity market is determined by the last power plant that is still required, the extreme gas prices are ultimately reflected in electricity prices.

Elimination of base load power plants

Although renewable energies are taking over an ever-increasing share of electricity generation in Germany, fossil power plants are mostly responsible for setting prices on the electricity market. Due to Germany’s exit from nuclear energy and coal production, more and more inexpensive base load power plants are no longer available.

Allocations & charges as a key component of the electricity price

The electricity price consists of many components. They fall into categories

• charges,
• network charges and
• allocate energy.

The surcharges in particular play an important role in the development of the electricity price. Here we have recorded the current electricity allocations for 2022.

Electricity price development Forecast: How will electricity prices develop?

As has become clear in the course of 2021, the development of electricity prices cannot be reliably predicted. But just because of the war in Ukraine and the sanctions against Russia, a reliable forecast for 2022 or the following years is currently hardly possible – especially because the long-term effects are hardly predictable.

Were it not for the current developments in Ukraine, we would think it likely that the pure market price could recover from the current extreme prices. However, even in this case, prices can still be expected to be well above the long-term average. A return to earlier, lower price levels is not to be expected, especially with regard to the price for CO2 certificates from European emissions trading (relevant for industry and power generation).

On the one hand, there are signs of a clear reduction in taxes and surcharges: According to the coalition agreement, the new federal government is aiming for a complete abolition of the renewable energy surcharge from mid-2022. On the other hand, the significant expansion of the power grid that is also planned could lead to an increase in grid fees. A fundamental revision of the allocation and fee system cannot be ruled out either.

How can companies counter the rising prices?

Companies should not only rely on energy efficiency, but also consider how they can reduce or optimize their existing electricity costs.

With the EHA effect, a model business with an electricity requirement of 66,000 kWh/pa can save 1,958 euros annually by optimizing fixed electricity price components.

Inform now!