Composition of Electricity Prices
Electricity prices are shaped by multiple factors and components. Understanding these factors helps consumers grasp the mechanisms behind their electricity bills. Here are the main factors influencing electricity prices.
01. Procurement and Sales Costs
The costs incurred by electricity companies when purchasing power from producers or the market constitute the largest portion of the electricity price. These costs fluctuate based on market supply and demand, as well as the energy sources used (such as renewable versus traditional energy). Companies must consider these variations when setting prices to ensure profitability.
02. Network Usage Fees
Network usage fees are payments made by users for the transmission and distribution of electricity. These fees are used to maintain and upgrade grid infrastructure, ensuring a safe and stable power supply. This portion is usually fixed and applicable to all users.
03. Additional Fees
In Germany, several important additional fees contribute to the electricity price:
EEG Surcharge: This fee funds the promotion of renewable energy, helping Germany achieve its renewable energy targets.
KWKG Surcharge: Supports efficient combined heat and power generation to encourage more effective energy use.
Offshore Network Surcharge: Related to the connection of offshore wind power, aimed at promoting its development.
§19-NEV Surcharge: Provides subsidies for energy-intensive industries, easing their electricity cost burden.
04. Taxes
Electricity prices also include various taxes, such as:
Electricity Tax: A fixed rate of 2.05 cents per kWh since 1999, primarily for revenue purposes.
Value Added Tax (VAT): The standard VAT rate is usually 19%, applicable to all goods and services, including electricity.
Other Fees: Such as franchise taxes, which vary by region.
05. Market Fluctuations and Policy Adjustments
Fluctuations in electricity market supply and demand, policy changes, and international market price shifts also affect electricity prices. For example, changes in climate policies may encourage more renewable energy integration, impacting overall prices. Additionally, international fuel price fluctuations can directly influence production costs and, consequently, electricity prices.
| Item | Percentage |
| Procurement and Sales | 55.3% |
| Network Usage Fees | 18.1% |
| Offshore Network Surcharge | 1.2% |
| Concession Fee | 3.5% |
| KWKG Surcharge | 0.7% |
| §19-NEV Surcharge | 0.9% |
| Value Added Tax (VAT) | 16.0% |
| Electricity Tax | 4.3% |
All values are in cents per kilowatt-hour. Percentage distribution is based on an average electricity price of 48.12 cents.
Source: BDEW, as of January 2023
EEG Surcharge: Since its introduction, this surcharge has steadily increased from €0.0041, peaking until 2015. As of July 2022, it has been reduced to €0.00.
KWKG Surcharge: This surcharge is aimed at promoting efficient combined heat and power generation. The surcharge for 2024 is €0.00275.
Offshore Grid Surcharge: There are additional risks associated with connecting offshore wind farms to the onshore grid. This surcharge is used to share these risks, with the amount allocated to the public for 2024 being €0.00656.
19-NEV Surcharge: This surcharge aims to reduce energy costs for energy-intensive businesses. For 2024, the surcharge is €0.00643.
Franchise Tax: This tax flows to local governments and varies based on the region and franchise contract, averaging around €0.0166.
Electricity Tax: Since April 1999, the electricity tax has been fixed at €0.0205.
Value Added Tax (VAT): Like other goods, electricity is subject to VAT, which is added at a rate of 19% to the final calculated electricity price.
Why are electricity prices increasing?
What is the Basic Electricity Fee ?
The basic electricity fee is a fixed amount that consumers must regularly pay for electricity supply to their homes or businesses, regardless of their actual electricity consumption. This fee is typically billed monthly or annually.
The basic electricity fee covers various fixed costs, including:
- Access to the power grid
- Meter operation
- Administrative expenses
- Other fixed costs associated with energy suppliers
As a result, the basic fee tends to remain relatively stable, regardless of fluctuations in actual electricity usage.
What is the Variable Price (Arbeitspreis)?
The variable price is the amount consumers pay for each kilowatt-hour (kWh) of electricity they use. Unlike the basic fee, the variable price is determined by actual energy consumption.
The variable price varies among energy suppliers and reflects the costs of:
- Electricity generation
- Transportation
- Sales
Why Will Grid Fees Increase Again in 2024?
Grid fees are the costs associated with the operation and expansion of the electricity grid, which are collected by grid operators. The challenges posed by the energy transition require significant modifications to the grid to accommodate millions of solar panels and wind turbines. This transformation is expensive, leading to continually rising grid fees, particularly in sparsely populated but windy regions of northern and eastern Germany.
Grid fees differ by region and have begun to rise since the beginning of this year. This increase is partly due to the German government’s decision to cancel a planned €5.5 billion subsidy aimed at stabilizing grid fees for 2024 in light of a budget crisis. As a result, grid operators have announced that they will increase grid fees from approximately 3 euro cents per kilowatt-hour to over 6 euro cents.
Will Electricity Prices Rise Due to Increased Grid Fees?
Electricity prices are expected to remain unchanged for a period due to the short notice of the changes. According to regulations, any increase in the basic supply price must be announced six weeks in advance, while other contracts generally require at least one month’s notice.
For more information on this topic, you can refer to resources from energy agencies and regulatory bodies in Germany.
