Will electricity be cheaper again in 2023?

Electricity prices have been increasing steadily since autumn 2021. Firstly because of the surge in demand after the global corona lockdowns; with the start of the Ukraine war, the lack of natural gas in particular is driving up the price of electricity in Germany.

The electricity price development is also affecting consumers and companies. Anyone signing a new electricity contract today has to be prepared for record prices. However, if you still have an ongoing electricity contract, which dates back to 2021 or 2020, for example, the increase in electricity costs will not yet affect you. The price increase could not reach many citizens until 2023.

The electricity price trend unsettles consumers, which they have to adjust to. Why is electricity so expensive? How much does a kilowatt hour of electricity currently cost? Will prices continue to rise until the end of the year? Will electricity be cheaper again in 2023? How do politicians want to relieve the burden? The most important questions and answers at a glance.

How high are wholesale electricity prices at the moment?

At the beginning of October, the day-ahead price for wholesale electricity peaked at EUR 497 per megawatt hour (MWh) (as of October 19, 2022). The day-ahead price describes the electricity price that is paid on the exchange for delivery on the following day.

Wholesale electricity prices have multiplied in recent years. This year, new record prices were recorded on many days of the year. According to the Federal Network Agency, the average wholesale electricity price in 2021 was EUR 96.85 per megawatt hour; in 2020 it was EUR 30.47 per MWh.

How much does a kilowatt hour of electricity cost in Germany?

The comparison portal Verivox determined an average electricity price for end customers in September 2022 of just under 52 cents per kilowatt hour (kWh) (as of October 18, 2022).

In September 2021 it was still 30.5 cents according to Verivox’s “Consumer Price Index for Electricity”. In September 2020, the electricity price for end customers was 29.6 cents. In 2000 it was 13.9 cents.

Electricity price: What do families and singles pay for electricity?

A family of five with an annual consumption of 4,000 kWh of electricity who now has to sign a new electricity contract pays 2,080 euros per year. That is electricity costs of 173.33 euros per month. A year earlier, the annual value was 1220 euros, i.e. around 101.67 euros per month.
The electricity costs of a single household with an annual electricity consumption of 1500 kWh currently add up to 780 euros per year. This corresponds to 65 euros per month. The annual value for 2021 was EUR 457.50, i.e. EUR 38.13 per month.

What is the price of electricity per kilowatt hour?

The electricity price for end customers in Germany is burdened with enormously high surcharges, levies and taxes. They make up the biggest part. This applies in any case to private households, trade, commerce and service companies.

The electricity price consists of three main components:

• procurement costs and distribution costs
• Taxes, levies and duties
• Charges for transport and measurement

The bottom line is that taxes, levies and surcharges for electricity far exceed the actual procurement costs. There are various discounts on ancillary electricity costs for large industrial consumers. Network charges are among the largest items billed to end customers. These are the fees that are incurred for the operation and expansion of the electricity grids. They are charged by the network operators. A basic distinction is made between transmission network fees and distribution network fees.

More about energy costs, electricity prices and gas prices:

The transmission network fees are paid to the operators of the large “electricity highways” that transport electricity over long distances. They amount to around three cents per kilowatt hour of electricity.

Added to this are the charges for the use and expansion of the distribution grids. They bring the electricity to every house connection. The distribution grid fees vary within Germany between three and nine cents per kilowatt hour.
In addition, household customers pay the levy under the law on the promotion of combined heat and power (KWK) as well as electricity tax and sales tax. The EEG surcharge under the Renewable Energy Sources Act has been abolished since July 1st.

Electricity price development: Why is electricity so expensive in 2022?

In Germany, electricity prices are already very high compared to other European countries. This is due to the duties, levies and taxes. The sharp increase in gas prices is now making matters worse. It ensures that electricity generation becomes significantly more expensive. With the increase in gas prices, the cost of generating electricity also increases. This is due to the merit-order procedure, according to which the wholesale electricity prices are formed.

What is a merit order and how does it work?

The term merit order could literally be translated as “order of performance”. It describes the principle of short-term trading on the electricity market, whereby only the electricity providers who produce the cheapest electricity at a certain hour of the day are used.

The cheap electricity from wind and sun is therefore practically always needed. If there is enough of it, the price on the electricity exchange can drop to zero, in rare cases it even falls below the zero line: If so much electricity presses into the system that it can no longer be used sensibly, “negative electricity prices” sometimes occur. on.

Anyone who uses electricity in these situations is therefore rewarded with money. But that is very rarely the case. If, on the other hand, there is little wind, the sun is not shining or a particularly large amount of electricity is needed, the price will rise until it is worth starting gas-fired power plants. That’s because gas is so expensive.

Gas-fired power plants are only used when the electricity from all other sources is not sufficient to cover the demand. The gas power plants then determine the price for all other generation variants that are traded on the electricity exchange. This merit order effect keeps raising electricity prices to new record highs, because gas prices are also extremely high. The generation variants wind, sun, biomass, nuclear energy, hard coal and lignite benefit enormously from this. Here, the production costs have hardly changed or not at all, but the sales prices are still rising significantly.

How will the electricity price develop by the end of the year?

Can’t say for sure. Various factors are decisive for the development of electricity prices. For example, the French nuclear power plants have a significant impact on the situation in Germany. Many of them are currently idle for maintenance. France therefore buys a lot of electricity in Germany, which increases demand and causes electricity prices to rise.

On the other hand, efforts are being made to reduce the generation of electricity from gas as much as possible in order to save gas. In the summer, for example, the federal government created a regulation with the “Replacement Power Plant Availability Act” that is intended to help old coal-fired power plants to be reactivated. This could reduce the use of gas power plants and dampen the price level. But that’s not for sure. Overall, the situation remains tense and the supply of electricity is scarce.

Electricity price development: will electricity be cheaper again in 2023?

It is unlikely that electricity prices will fall again. In any case, the current forecast by the consulting company Prognos paints a bleak picture: According to this, wholesale electricity prices will rise significantly on average in 2023 and, in the worst case, exceed the limit of 500 euros per megawatt hour. It is assumed that Germany will no longer purchase gas from Russia with immediate effect.

A more moderate scenario from Prognos assumes that full independence from Russian gas will not be achieved until the summer of 2024. In this case, the price will be at a similarly high level as in 2022 until 2023 and then drop to around 70 euros per megawatt hour by 2040.

Who has the highest electricity prices in Europe?

Germany and Denmark have been among the frontrunners in electricity prices for private households in Europe for years. This is confirmed by the regular electricity price comparisons by the European statistical authority Eurostat.

While the electricity prices in trading on the exchange are often close together across Europe, the end consumer prices drift far apart. This is due to the different levels of duties and taxes, which are key components of the electricity price for end customers.

Electricity price brake: How do politicians want to relieve consumers?

The traffic light coalition has decided that the levy under the Renewable Energy Sources Act (EEG) will be completely eliminated as of July 1st. For years it had been around six cents per kilowatt hour. The money collected via the EEG levy was used to finance the production of electricity from renewable sources. It is now financed from the federal budget.

An electricity price brake is currently under discussion. In mid-October, the first proposals were made known as to how it should be designed. It is also possible that “accidental profits” from the energy companies will be skimmed off.

How can I save on the electricity price?

Various comparison portals on the Internet are useful for orientation. Basic information is also available from the consumer advice centres. It is often also worth taking advantage of the energy advice provided by the consumer advice centers and making an appointment to receive detailed advice.

What consumes the most electricity at home?

The heating pump is often the number one power guzzler. This is especially true if the device is very old. Heating pumps are used to distribute the warm water that flows through the radiators in the house.

An old, inefficient heating pump can easily consume 600 kilowatt hours of electricity per year. With a modern pump, it is less than 50 kilowatt hours. So it’s worth checking the boiler room and replacing the pump if necessary. In view of the high electricity prices, the costs of buying and installing a new heating pump are usually quickly amortized.

Electric stoves are also among the household appliances that consume the most electricity. That’s why you should follow a few basic rules: The pot should fit the plate size as far as possible. It is better to boil water with a kettle than on the stove.

Even refrigerators and freezers can draw a lot of electricity. At least if they are of a certain age and do not meet high standards of efficiency. It is therefore advisable to opt for a high standard of efficiency when buying a new refrigerator or freezer. The same applies to tumble dryers, dishwashers and washing machines.

And what’s more, secret power guzzlers deserve more attention today than ever before: the standby operation of televisions, computers, printers and other electronic devices often adds up to a considerable power consumption in many households.

More: Gas price development: This is how expensive gas is now and in the future.