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Wind turbines and electricity pylons in Schleswig-Holstein: Grid fees will rise significantly in 2024, but renewable energies will dampen prices on the wholesale market

Photo: Christian Charisius / dpa

The signs for the energy year 2024 were not exactly encouraging: After the Federal Constitutional Court's budget ruling, the federal government decided in December to increase the national CO₂ price for heating and refueling from 30 to 45 euros - more than previously planned. The coalition also received a billion-dollar subsidy for electricity network fees shortly before the end of the year, and the energy price brakes also expired. All of this suggested that electricity and gas would become more expensive this year.

But now an analysis by the comparison portal Verivox shows: Anyone who compares tariffs and concludes a new energy contract can, despite the increased price components, secure overall more favorable conditions than in 2023. This is because electricity and gas are available on the wholesale market - where suppliers provide the energy for their customers buy – are comparatively cheap. “Companies’ procurement costs are lower than a year ago,” says Verivox expert Thorsten Storck. That offsets the additional costs so far.

Specifically, a household with an average electricity consumption of 4,000 kilowatt hours (kWh) per year can sign new electricity contracts for around 26 cents per kWh. This adds up to 1028 euros per year for the household. For comparison: at the beginning of 2023, corresponding offers started at 1,657 euros per year.

However, not everyone switches energy suppliers regularly. Many remain loyal to their municipal utility – or are dependent on local basic supplies for credit reasons. The price differences are therefore considerable: existing customers will pay an average of 37 cents per kWh of electricity this January, as the Strom-Report portal reports. The differences can also be significant from place to place.

Cheaper gas, more wind and solar power

So far, Verivox has only seen a slight trend towards price increases in basic services: some basic suppliers have announced increases for February and March, an average of five percent. Some others, however, want to reduce prices, also by an average of five percent. However, the higher network fees and the CO₂ price could still have a delayed impact. “We expect a wave of price adjustments in the next few weeks, especially among basic suppliers,” says Steffen Suttner from the comparison portal Check24.

If you want to understand the temporary relaxation on the energy market, you have to look at the EEX energy exchange in Leipzig. There, in wholesale, electricity cost an average of 23 cents per kWh in the crisis year of 2022. In 2023, prices eased to an average of 9.2 cents. This January the average was just under eight cents. The big difference to end customer prices is made up of network fees, taxes, levies and levies - as well as the electricity provider's profit margin.

The relaxation on the electricity exchange is due to the fact that gas and coal are no longer as expensive as they were in 2022, immediately after Russia's attack on Ukraine. It also shows that wholesale electricity is cheap when many solar and wind farms feed in - and few fossil power plants are needed. On top of that, the prices are determined in interaction with neighboring countries, for example when cheaper electricity from abroad pushes onto the German market.

Verivox also reports relief for gas customers. Households with an average annual consumption of 20,000 kWh can therefore conclude new contracts for a good eight cents per kWh, which adds up to 1,646 euros per year. At the beginning of 2023, 3202 euros were due.

The short-term increase in the CO2 price has “no visible impact on gas prices for new customers,” says Verivox man Storck. "The gas suppliers do not have to pass on this increase directly, as wholesale prices for natural gas fell significantly last year." In the basic gas supply sector, Verivox also reported more announced price reductions than increases for February and March - although the level for some basic suppliers is still very high.

Warning about dubious providers

The fact that gas is comparatively cheap wholesale is due, among other things, to the weak demand from industries such as the chemical sector. The weather also influences how much gas households in Europe use. At the same time, countries like Germany are building additional terminals for importing liquefied natural gas (LNG). The Republic's gas storage facilities were recently 76 percent full.

For private individuals, however, the relaxation is likely to be over in March: then the old VAT rate of 19 percent will be due again on gas and district heating. The federal government reduced the rate to seven percent in October 2022, but at the time spoke of temporary relief during the energy price crisis.

more on the subject

  • Electricity prices: Why network fees are rising so sharply - and what could be done about itBy Benedikt Müller-Arnold

  • Network fees, price caps, CO₂ tax: What is changing in energy prices - and what you should pay attention to By Benedikt Müller-Arnold

Consumer advocates recommend comparing electricity and gas tariffs and switching if necessary, but they also warn against dubious suppliers. Some so-called energy discounters had advertised cheap offers before the price crisis - but then canceled contracts after wholesale prices rose suddenly. At that time, many of those affected ended up in primary care, at least temporarily.

The North Rhine-Westphalia Consumer Center suggests a multi-stage approach: Regular customers of regional providers can first check whether it is worth switching to a current tariff offer within the provider, for example from the basic service to a special tariff. If you don't find anything satisfactory, you can switch to alternative providers - but before signing the contract, you should research online whether the company has had a negative reputation in the past.