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In focus - Energy prices and transparency for consumers

Prices

Introduction

Source: Fotolia.com/Kautz15

© Fotolia.com/Kautz15

What does the electricity price consist of?

Anyone receiving deliveries of electricity pays a certain price for it. The electricity price for residential customers consists of three main components:

  • the price of the acquisition and sale of the electricity,
  • the fees for using the electricity grid,
  • and the state-imposed components of the price, such as taxes and the EEG surcharge.

The first price component is formed by competition between the electricity providers - it can therefore vary from one provider to another. The electricity consumers can in many cases save money by exercising care in their choice of electricity supply contract and checking whether it is worth switching provider or tariff.

In contrast, the electricity provider cannot influence the other components of the electricity price. This is because they are prescribed by legislation and government regulations.

Roughly half of the electricity price results from the state-imposed price components. In 2016, they accounted for 52.6 per cent. The competition-based share of the price accounted for 24.7%, and 22.7% of the electricity price took the form of grid use fees (including metering and billing costs).

What does this mean in practice? In 2016, residential customers with an annual electricity consumption of 2,500 kWh paid a total average electricity price of 29.80 cents/kilowatt-hour (kWh). Acquisition and supply accounted for 7.35 cents/kWh of this amount (see diagram). It is important to compare different utilities’ tariffs. For many people, this can mean a saving of several hundred euros per year. For example, the electricity price of a supplier who is not the primary local supplier amounted to an average of 28.17 cents/kWh in 2016. According to the 2016 monitoring report, private households unfortunately still make too little use of the opportunity to change their electricity supplier.

Grid use fees vary across the country, because they depend on the costs in the specific grid area and the electricity consumption in that area. In order to reduce regional differences in grid fees, the Federal Ministry for Economic Affairs and Energy has submitted a bill to modernise the grid fee structure. The Act on the Modernisation of the Grid Fee Structure was adopted by the Bundestag on 30 June 2017. Further information can be found here. In 2016, according to the Monitoring Report from the Federal Network Agency (BNetzA) and the Bundeskartellamt (BKartA) (PDF: 7 MB), the the nationwide average was 6.71 cents/kWh, including metering and billing costs (Infographics)

Click here for more information about state-imposed components of the electricity price.

Further information can be found here (PDF, 79KB).

Infographics

Many sources provide information on state-introduced components of the electricity price. The information platform operated by Germany's transmission system operators (www.netztransparenz.de [only in German]), for example, contains a wealth of material on the EEG surcharge, the CHP surcharge and the surcharges required under Section 19 subsection 2 of the Electricity Network Tariff Regulation (StromNEV), Section 17f of the Energy Industry Act (EnWG) and Section 18 of the Regulation on Interruptible Loads (AbLaV). Electricity and turnover tax rates are directly determined by the provisions of the Electricity Tax Act and Turnover Tax Act promulgated in the Federal Law Gazette. Section 4 subsection 1 of the Concession Fee Regulation (KAV) governs the presentation of concession fees as defined in Section 48 EnWG (or Section 46 EnWG if charged in connection with easement contracts) in network access charges and general tariffs, while Section 40 subsection 2 no. 7 EnWG covers the presentation of concession fees in utility bills for retail consumers.

These components may be described as "state-introduced", but they rarely go directly into the government budget. They serve various purposes and are levied in different ways:

1. EEG surcharge

The EEG surcharge (renewables surcharge) finances the expansion of renewables. It provides the money to pay for the funding of electricity from wind, solar and biomass. It has made the advances in renewables possible by providing a reliable financial base for the last 15 years.

Under the Renewable Energy Sources Act (in German), power plant operators receive a market premium for every kilowatt-hour of renewable power that they feed into the grid over a 20-year period. The tariff is paid by a transmission system operator (TSO), but the operators need to market the electricity themselves. The market premium compensates for the difference between the feed-in tariff and the average trading price for electricity.

The difference between income and expenses (the "EEG differential costs") is divided up across the power consumption (EEG-liable final consumption) that is not fully or partially exempted from the EEG surcharge under special regulations. The resulting amount is the EEG surcharge.

Every 15 October, the 4 German transmission system operators set the EEG surcharge for the following year. To do this, they consult with recognised research institutions and prepare a sound, rigorous forecast of their expected expenses (primarily the EEG tariffs to be paid to plant operators) and their projected income from the sale of EEG power on the power exchange.

For 2018, the EEG surcharge stands at 6.792 ct/kWh. This is slightly down on the previous year, in which the EEG surcharge amounted to 6.88 ct/kWh. Find out more about the 2018 EEG surcharge here (in German) (PDF, 347KB).

2. CHP surcharge

The CHP surcharge was introduced in 2002 by the Combined Heat and Power Act (KWK-G).

Combined heat and power (CHP) plant operators can qualify to receive premiums for CHP power if they satisfy certain criteria. The KWK-G also grants premiums to promote the use of heating and cooling networks and accumulators in certain circumstances. Once again, the transmission system operator is initially responsible for paying the premiums. The costs are then evenly distributed among the TSOs by a cost equalisation mechanism. If a transmission system operator ends up with net costs after the premium and cost equalisation payments have been made, it can add these costs to network usage tariffs as long as it meets certain requirements. The CHP surcharge is levied wherever the electricity suppliers have agreed to provide the network access needed to supply household customers and have included network usage tariffs in their final price calculations.

In 2015, the CHP levy for the supply of residential customers was 0.254 ct/kWh. In 2016, it stood at 0.445 ct/kWh. In 2017, the CHP surcharge is 0.438 ct/kWh.

3. Surcharge under Section 19, subsection 2 of the Electricity Grid Fee Ordinance

Final consumers can request an individual network tariff under Section 19 subsection 2 sentence 1 or sentence 2 of the Electricity Network Tariff Regulation (StromNEV) if they meet certain criteria. Individual network tariffs can cause downstream operators of electricity distribution networks to lose revenues, however, and so transmission system operators must reimburse them for these losses. The transmission system operators are required to balance these reimbursements and their own lost revenues among themselves. The resulting lost revenues are charged to all final consumers proportionately as a "Section 19 StromNEV surcharge" on the network tariffs.

In 2015, the surcharge on power supplied to household customers was 0,237 ct/kWh. In 2016, it was 0,378 ct/kWh and in 2017 it is 0,388 ct/kWh.

4. Offshore surcharge under Section 17f EnWG

The offshore surcharge was introduced in 2013 in order to create a predictable environment for the expansion of offshore wind energy. This includes providing clarity with regard to compensation between transmission system operators and plant operators. Under Section 17f subsection 5 Energy Industry Act (EnWG), transmission system operators may charge final consumers a surcharge on network tariffs in order to recover the costs of compensation paid due to delays in connecting offshore plants to the grid or due to technical problems with these connections.
To protect consumers, the offshore surcharge is capped at 0.25 ct/kWh. Also, the operators of offshore wind farms and transmission system operators are required to cover significant percentages of any damages incurred. This ensures that costs are distributed fairly. In addition, the time for which the offshore wind farms receive compensation is deducted from the end of their funding period under the Renewable Energies Act.

In 2015, the offshore surcharge for the supply of residential customers was -0.051 ct/kWh. In 2016, the CHP levy stood at 0.040 ct/kWh. The offshore surcharge stands at -0.028 ct/kWh in 2017.

5. Section 18 AbLaV surcharge

The surcharge for interruptible loads has been levied on final consumers since 1 January 2014 and covers the costs of interruptible loads used to maintain grid and system reliability.

Suppliers of interruptible loads may participate in auctions under the ordinance on interruptible loads and offer their interruptible load capacity to transmission system operators. This capacity will be paid for by the transmission system operators.

The transmission system operators balance their costs and finance them by means of passing them on to final consumers through a surcharge at the same amount per kilowatt hour. The surcharge is set once a year and adjusted on 1 January. In 2017, the EEG surcharge stands at 0.006 ct/kWh.

A revised version of the ordinance entered into force on 1 October 2016.

6. Concession fee

Concession fees are paid by grid operators to municipalities in exchange for using public rights of way. Fee amounts vary depending on the easement contract between the grid operator and the municipality, but are capped by the Concession Fee Regulation (KAV).

In accordance with Section 2 para. 2 of the Concession Fee Ordinance, the maximum concession fee that has to be paid for the supply of tariff customers is determined by the number of inhabitants of the municipalities. It ranges from 1.32 ct/kWh for municipalities of up to 25,000 inhabitants to 2.39 ct/kWh for municipalities with more than 500,000 inhabitants. According to the 2016 Monitoring Report of the Bundesnetzagentur and the Bundeskartellamt, the concession fee for the supply of private households averaged 1.65 ct/kWh.

7. Electricity tax

In 1999, the Electricity Tax Act introduced a tax on electric power. It aims to support climate policy objectives by encouraging electricity conservation. It also serves to lower and stabilise pension contribution rates since part of the tax revenue goes toward reducing contribution rates for social security.

The tax is incurred by consuming self-generated electricity or drawing electricity from the grid for consumption. The taxpayer is determined based on who provides or generates the electric power and who draws it from the grid. Generally, electricity is drawn from the grid by a final consumer. The taxpayer, in this case, is the utility company (the electricity supplier). However, the taxpayer can also be an autoproducer. The tax is managed by the Customs Administration. The revenue goes toward the federal budget.

The electricity tax on power supplied to household customers is 2.05 ct/kWh.

8. Turnover tax (value-added tax)

Items supplied by businesses to customers are generally subject to turnover tax. Under the 1994 Turnover Tax Act, "items" refer to not only products, but also services. Turnover tax per se is ultimately borne by the final consumer. The supplying company merely serves as a trustee: it collects turnover tax from customers and, since only businesses owe turnover tax, pays it over to the internal revenue service.

Turnover tax revenue is shared between the federal, state and municipal governments based on formulas set out in the Revenue Sharing Act (FAG).

Turnover tax for electricity is 19% and is levied on the total amount made up of generation and supply, network tariffs and other state-introduced price components.

Several components go into the retail gas price that households pay to gas suppliers.

  • Energy procurement and supply costs, plus the supplier's margin (i. e. the amount set through market competition)
  • Regulated network tariffs (which may include charges for meter operation, metering and billing) that must be paid to the grid operator for supplying a particular customer
  • State-introduced price components (taxes and rights-of-way use fees)

State-introduced price components and network fees are set by legislators or regulators and thus fall outside the supplier's control. The supplier's procurement and supply costs, by contrast, are determined by market competition and can vary from one supplier to the next.

In 2016, the competition-based share in the gas price totalled around 50.5%. Grid use fees (including metering and billing costs) accounted for 23.8% and state-imposed price components for 26.0% of the gas price (diagram).

Composition of the gas price for private households consuming between 5,556 and 55,556 kWh in 2016, as of 1 April 2016 Enlarge

Composition of the gas price for private households consuming between 5,556 and 55,556 kWh in 2016, as of 1 April 2016

© Monitoring Report by Federal Network Agency/Federal Cartel Office

The 2016 Monitoring Report (PDF, 5MB) from the Bundesnetzagentur and the Bundeskartellamt puts the total average gas price at 6.54 cents/kWh for private households, based on an annual gas consumption of between 5,556 kWh and 55,556 kWh. Of this price, energy procurement and supply accounted for 3.30 ct/kWh on average (competition-based share). The average gas price for private households has fallen by approximately 2.1% compared to the previous year. This trend towards a clear decline in gas prices for final consumers is thus continuing.

Grid use fees vary across the country, because they depend on the costs in the specific grid area and the gas consumption in that area. According to the 2016 Monitoring Report, the nation-wide average on 1 April 2016 was 1.56 ct/kWh (including metering and billing costs).

Many sources provide information on state-introduced components of the gas price. Energy tax (gas tax) and turnover tax (also known as "value-added tax") rates are directly determined by the provisions of the Energy Tax Act and Turnover Tax Act promulgated in the Federal Law Gazette. Section 4 subsection 1 of the Concession Fee Regulation (KAV) governs the presentation of concession fees as defined in Section 48 EnWG (or Section 46 EnWG if charged in connection with easement contracts) in network access charges and general tariffs, while Section 40 subsection 2 no. 7 EnWG covers the presentation of concession fees in utility bills for retail consumers.

These components may be described as "state-introduced", but not all of the payments go directly into the government budget. They serve various purposes and are levied in different ways:

1. Concession fee

Concession fees are paid by grid operators to municipalities for using public rights of way. Fee amounts vary depending on the easement contract between the grid operator and the municipality, but are capped by the Concession Fee Regulation (KAV).

Under Section 2 subsection 2 KAV, concession fee caps on gas supplied to standard-rate customers are based on municipality population numbers and the type of consumption. If gas is used solely for cooking and hot water, the caps range from 0.51 ct/kWh for municipalities with up to 25,000 residents to as much as 0.93 ct/kWh for municipalities with more than 500,000 residents. If the gas is used for other purposes covered by a standard rate, the concession fees range from 0.22 ct/kWh for municipalities with up to 25,000 residents to as much as 0.40 ct/kWh for municipalities with more than 500,000 residents. According to the Monitoring Report 2014 published by the Federal Network Agency and Federal Cartel Office, the average concession fee on gas supplied to household customers with basic gas service was 0.25 ct/kWh. Under Section 2 subsection 3 KAV, concession fees for special contract customers are additionally capped at 0.03 ct/kWh.

2. Energy tax (gas tax)

Between 1999 and 2003, the ecological tax reform raised various tax rates set in the Mineral Oil Tax Act on energy products, including gas. One of the main goals of the reform was to advance climate policy goals. By taxing vehicle and heating fuel, it encouraged consumers to conserve energy. In return, it reduced labour costs by lowering and stabilising social security contributions. In 2006, the Mineral Oil Tax Act was replaced by the Energy Tax Act, which also contained a tax on coal.

The Energy Tax Act levies a tax on the consumption of natural gas as a heating fuel. This is a conventional excise duty that is effectively borne by the consumer.

The tax is generally incurred by consuming self-generated gas or by taking gas from the grid for consumption (taxpayer). The tax is thus not collected directly from the consumer, but is generally collected from the producer or gas supplier farther upstream. This is considered to be a more efficient approach.

The energy tax (gas tax) on gas supplied to household customers is currently 0.55 ct/kWh. The energy tax is collected by the Customs Administration. The revenue goes toward the federal budget.

3. Turnover tax (value-added tax)

Items supplied by businesses to customers are generally subject to turnover tax. Under the Turnover Tax Act, "items" refer to not only products, but also services. Turnover tax is effectively borne by the consumer. Turnover tax is paid by the supplying company, who has to pay the tax over to the internal revenue service.

Art. 106 Section 3 of the Basic Law requires the federal and state governments to share turnover tax revenue. The municipal governments have been entitled to a portion of the revenue since 1998 (Art. 106 Section 5a of the Basic Law). The particulars are laid out in the Revenue Sharing Act.

Gas deliveries are subject to the regular turnover tax rate of 19 %. The tax is levied on the charge, i. e. the total amount made up of generation and supply, network tariffs and other state-introduced price components (e. g. energy tax).