Dusseldorf Michael Radau, CEO of the supermarket chain Superbiomarkt, paid 4.7 cents per kilowatt hour for the electricity in his branches until the end of 2021. But the supply contract expired, the new offer from the provider: 18 cents per kilowatt hour working price. Radau did not want to accept the almost quadrupling of running costs.
So Radau decided to buy the energy from another provider on the spot market. There, a kilowatt hour cost between six and eight cents. But that should pay off.
After the outbreak of the Ukraine war, the price rose to more than 24 cents – five times the working price that was usual just a few months ago. In order to limit the damage, the supermarket boss concluded a permanent contract. Now the company is paying 20.3 cents, at least until the end of the year.
Many retailers are in the same mood. According to a survey by the German Retail Association (HDE), which is available exclusively to Handelsblatt, 89 percent feel the effects of the Ukraine war in the form of higher energy or supplier costs. “In this time of crisis, the high energy prices are an additional burden for many trading companies,” warns HDE CEO Stefan Genth. They exacerbated the uncertainty in the industry.
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“This has dramatic effects for many retailers,” observes Steffen Jost, owner of five fashion shops in the Palatinate. The electricity costs are one to two percent of sales, but the margin is not higher for many retailers. “If the electricity costs double, the entire profit is gone,” explains the entrepreneur.
Organic retailer Radau also felt this. “The increased electricity price causes us additional costs of 1.6 to 1.8 million euros,” he says. According to his own statements, there is not much left of the profit. And this despite the fact that the chain was able to benefit from significant sales growth during the corona pandemic.
Rewe and Amazon participate in wind farm
According to the HDE survey, these problems are already affecting a large part of retail. Around half of those surveyed stated that they had already been forced to change tariffs or providers because energy contracts had expired.
The price increases associated with a new energy contract are yet to come to the remaining traders. “We still have contracts that will last until next year,” emphasizes entrepreneur Jost. He should actually be negotiating new contracts now, but you can’t find any electricity suppliers who are now making contracts for next year. “I’m already terrified,” he admits.
According to the HDE survey, many retailers are experiencing precisely these challenges. Almost every eighth retail company reports problems when extending its energy contract. “Many traders cannot find a supplier who can supply them with sufficient energy at economical conditions,” said Genth, Managing Director of the association. “This is particularly dramatic in view of the winter.”
Those who can are looking for a sustainable solution. The Rewe Group, for example, thinks big: It has secured a significant part of the Borkum Riffgrund 3 offshore facility, which will be connected to the grid in 2025. The trader then obtains 100 megawatts of wind power from there every year and thus covers almost 20 percent of his electricity requirements in Germany. Corporations such as BASF, Google and Amazon will also purchase fixed amounts of electricity from Riffgrund 3.
“Retail is being attacked from three sides by the rising energy prices,” explains Jan-Oliver Heidrich, Managing Director of EHA, the central energy service provider of the Rewe Group. On the one hand, the suppliers demanded higher prices. Secondly, the costs for the dealers themselves are rising. And thirdly, the purchasing power of customers, who are also suffering from expensive energy, is also falling.
Kik throttles heating and air conditioning
There is therefore hardly any leeway to pass on the higher energy costs to customers. “They have a direct impact on the margin,” says Heidrich. That goes for many dealers to the substance.
All companies are now frantically trying to reduce their power consumption in order to keep the additional load as low as possible. Retailers such as Rewe or Kik have already announced that they will lower the maximum temperatures in the shops and turn down the air conditioning in the summer – as far as the workplace ordinance allows.
“All managers are trained on how to save more energy in their areas,” Kik boss Patrick Zahn recently reported to the Handelsblatt. Because consumption has become a cost risk that is difficult to calculate. “We are now turning every stone to see where we can still save energy,” confirms organic retailer Radau.
But the potential of such measures – such as replacing old freezers – is limited. This means he can reduce consumption in the 33 stores by just eight to ten percent. Textile entrepreneur Jost tackled the problem more fundamentally – before the current crisis. He has upgraded all of his houses in terms of energy, for example switching completely to LED lighting and digital control of energy use.
Lidl wants to install another 3,700 solar systems
According to his own statements, he has achieved an average saving of 30 percent in electricity consumption. In a multi-storey car park it was even 90 percent. “But we also invested several millions in this,” he explains. He is also very happy that the work was completed before the corona crisis, when there were no difficulties getting craftsmen and materials: “Anyone who has to do it now has a real problem.”
He is currently noticing this, because he also wants to install photovoltaic systems on all roofs. He calculates a lead time of nine months for this. The solar cells are available, but there are no inverters that convert the direct current produced into alternating current.
The majority of dealers now want to install solar systems. The Schwarz Group with Lidl and Kaufland, for example, already has systems covering an area of one million square meters with an annual output of 130 million kilowatt hours. Around 3,700 additional systems are to be installed by the 2025 financial year.
The situation is similar for other discounters. At the beginning of 2020, Aldi-Süd already had 1,300 photovoltaic systems on the branch roofs, which also produce almost 130 million kilowatt hours of electricity annually. In addition to PV systems, Netto Nord from the Danish Salling Group wants to replace all gas heating systems in its German branches with heat pumps.
Laws slow down the expansion of photovoltaics
Many smaller retailers are far from that far – and they are not only faced with problems in the procurement of materials. The HDE, for example, complains that the companies encountered “unnecessary bureaucratic hurdles in practice” when building solar systems. This involves different connection conditions and complicated and lengthy direct marketing and certification obligations.
Legal requirements would also waste potential. According to the association, the incentives for expansion in this area should be set by the legislature in such a way that the largest possible dimensioning of the system is worthwhile.
>> Read here: Germany in bureaucracy madness: Why 1000 finished solar systems can not go to the grid
Energy expert Heidrich describes how this works in practice. Grid operators would have the right to switch off systems with more than 100 kilowatts (KW) if the grids are overloaded. “That’s why the dealers build systems with less than 100 KW on the roof,” he observes.
The low feed-in tariff also limits the output. Many dealers therefore only built systems for their own use with a maximum of 75 KW on the roof, because larger systems are uneconomical for them. 200 KW are often possible. The managing director of the Rewe subsidiary complains: “The willingness would be there to do more, but is being held back by politics.”
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