Good prospects: households benefiting from stable electricity prices

The EEG surcharge in 2018 is falling – despite a record expansion of renewable energy.

Woman in the mountains making a heart shape with her hands.© iStock/swissmedivision

Good news: the “EEG surcharge” will fall slightly next year, by 0.088 cents to 6.792 cents per kilowatt-hour. The EEG surcharge, the full name of which is “Renewable Energy Sources Act surcharge”, is paid by customers via their electricity bills and currently stands at 6.88 cents per kilowatt-hour.

The EEG surcharge saw some rapid increases up to 2014 (from 3.59 cents/kWh in 2012 to 6.24 cents/kWh in 2014). The fundamental reforms undertaken over the past four years have made it possible to stabilise both the surcharge and thus also the electricity prices.

This impacts positively on electricity bills: since 2013, electricity prices have only risen very slowly, much more slowly than overall inflation. At the same time, the proportion of electricity consumption covered by renewable energy rose by 10 percentage points, the highest increase in a legislative term since the introduction of the Renewable Energy Sources Act.

The reforms are paying off

Federal Minister Brigitte Zypries said: “The reforms we have carried out over the past few years have kept our electricity prices stable. The average household is paying roughly the same in electricity bills as they did in 2014. This is despite the fact that the share of renewables in our electricity system has risen quite considerably. This shows that we have stopped the cost increase associated with the rise in renewables capacity. It’s good news, but additional work is required.”

The 2014 and 2017 revisions of the Renewable Energy Sources Act have made renewable energy fit for the future. The 2014 revision stipulated binding deployment corridors, concentrated the continuing expansion on the low-cost technologies of onshore wind and photovoltaics, ended excessive financial assistance, and restricted the creation of additional capacities for the comparatively cost-intensive biomass.

The 2017 revision is continuing firmly down this path. Competitive auctions are already ensuring that the costs of new wind energy and photovoltaic installations are dropping dramatically. For example, the remuneration for ground-mounted PV installations has fallen from 9.47 cents/kWh at the beginning of 2015 to 4.91 cents/kWh in the last auction.

How the EEG surcharge is calculated

Each year in mid-October, the transmission system operators publish the rate of the renewables surcharge for the following year. They do so on the basis of forecasts calculated by renowned research institutes. They take into account the balance on the EEG account on 30 September and a “liquidity reserve”. The Bundesnetzagentur (Federal Network Agency) checks that all the rules and regulations have been complied with. Any discrepancies between the forecast income and expenditure and the actual figures are logged in the “EEG account” and factored into the calculations for the following year (click here for more details of how the EEG account works).

What is the purpose of the renewables surcharge?

The EEG surcharge (renewables surcharge) finances the expansion of renewables. It does so in this way: anyone operating a solar installation or a wind turbine generally markets the electricity themselves, e.g. on the electricity exchange, and receives a market premium for this. The market premium compensates for the difference between the amount that can be earned on the market and the amount needed to operate the installation. The difference between the two amounts is passed on to the other electricity consumers via the EEG surcharge. This means that private households and commercial consumers help to fund the expansion of renewable energy via the surcharge.

The financial burden is distributed fairly. Almost two-thirds of the EEG surcharge is financed by businesses, and just over one-third is funded by residential customers. Companies which use a lot of electricity and face international competition can apply for a partial exemption from the EEG surcharge. The trend in companies making use of this is continuing to point slightly downwards: 2,252 electricity-intensive companies and railway companies have applied for partial exemption from the EEG surcharge in 2018. But these companies are still paying more than €600m to finance renewable energy. The vast majority of companies are continuing to pay the full EEG surcharge.

What is the relationship between the electricity price and the electricity exchange?

One of the reasons for the fall in the surcharge next year is the rise in the price on the electricity exchange. The electricity prices on the trading floor are higher today than they were a year ago. This means that renewable electricity is worth more. The increased market revenues reduce the market premium (which offsets the difference between the assistance given to and the market price of renewable electricity). As a result, the higher the price on the exchange is, i.e. the higher the market revenues are, the lower the market premiums and thus the EEG surcharge are.

The amount paid by the consumers is calculated based on the price of electricity on the spot market plus the EEG surcharge. This sum reached a record 10.55 cents/kWh in 2013. It will probably remain below this level again in 2018, at 10.13 cents/kWh. Private households particularly profit from this stabilisation: between 2013 and 2017, the electricity prices for residential customers rose by an average of just 0.3% – much less than overall inflation.

Proportion of electricity generated from wind, water, sun and geothermal energy is rising

This is despite the fact that the share of renewables in our overall electricity consumption has been growing faster than ever. It stood at 25% in 2013. By mid-2017, this figure had risen to 35% (preliminary data). This shows that there has been a dynamic expansion in renewable energy in recent years. This is set to continue in future. The grid system operators are expecting that another 8,000 MW of renewables capacity will be added in 2018. This will increase the total amount of electricity from renewables to 204 terawatt hours.

Consumers should compare tariffs

In recent years, the conditions at which electricity suppliers have been able to purchase their electricity have kept improving. If these falling prices are to reach the consumers so that they actually benefit from cheap electricity, it is vital for the consumers to continue comparing electricity tariffs regularly and, if necessary, switch to a different tariff or swap providers. Now is a good time for consumers to read their mail carefully: the companies need to publish their new prices at the latest six weeks before the end of the year.