Who will get cheaper electricity – even without electricity tax reduction

The hotly debated reduction in electricity tax for consumers is off the table for now. At the same time, grid costs could rise dramatically in the coming years. We explain how this can be prevented and electricity can still become cheaper.

They now account for one-third of the electricity price. According to figures from the German Energy Industry Association (BDEW), private households currently pay an average of 39.6 cents per kilowatt-hour. Of this, just under 11 cents are grid usage fees. Other smaller items add up to a total of 13.3 cents. By comparison, in 2015, the total was just 6.6 cents.

Above all, the expansion of renewables. The power grid was originally designed to distribute electrical energy generated in a few large power plants across the country. With increasing solar, wind, and biomass power generation, generation is becoming increasingly decentralized. This requires the expansion of regional grids and electricity highways.

The dimensions are gigantic. In a recent analysis, the think tank Agora Energiewende estimates a total of 560 billion euros by 2045. However, a large portion will have to be invested in the next 10 years. A study by the University of Mannheim, funded by the Hans Böckler Foundation, which has close ties to the trade unions, estimates a total of 440 billion euros by 2037. These high sums are due to the fact that grid operators must massively increase their investments. The German Energy Agency (Dena) has projected that the mostly municipal operators of the regional grids alone will have to increase their expenditures by up to 123 percent over the next 20 years – although this also takes into account the upcoming conversion and expansion of the heating and gas grids.

The financial burden of expansion will be placed on consumers and companies if everything stays the same. Agora experts have projected that, in an unfavorable scenario, grid costs for consumers could rise by up to 30 percent over the next ten years. That would be 17 cents per kilowatt hour, up from the current 13 cents. However, the authors warn against such rising costs, as higher electricity prices could trigger negative chain reactions: "This vicious circle threatens to become a hurdle for the transition to electric cars, heat pumps, or other electricity-based technologies," the think tank's study states.

Currently, heated discussions about the various instruments are taking place behind the scenes. The coalition agreement between the Christian Democratic Union (CDU) and the Red Party (SPD) provides for a new investment fund. Private investors are to provide capital backed by government guarantees. The authors of the Mannheim study specifically name the asset manager BlackRock, for which Chancellor Merz once worked, and the investment company Union Investment. At the same time, the economists point out that investment companies and banks "demand high returns on their capital investment," which then leads to higher electricity prices.

Dena is bringing "strategic public equity" into play. Tom Krebs and Patrick Kaczmarczyk from the University of Mannheim make a similar argument. The idea: the federal and state governments take out loans at low interest rates and pass the money on. Public investment companies are to be established as a vehicle for this. The effect: "By providing public equity at favorable conditions, financing costs can be reduced and investment needs secured in the long term," say the authors. Further advantages are that such transactions are exempt from the debt brake and the federal government's €500 billion infrastructure program remains untouched.

The Agora experts consider this urgently necessary – in order to first identify where the costs in the grid actually arise, something even the regulatory authority, the Federal Network Agency, has so far failed to do. If the problem areas are localized, the costs of expansion could be significantly reduced due to increased efficiency. Further elements of an Agora package of measures include overhead lines on pylons instead of underground cables for new power lines. The aforementioned state equity capital will also be included.

Despite promised reduction

In addition, dynamic grid fees are needed: They increase when the lines are under heavy use, which is intended to reduce electricity consumption by consumers – from electric cars to industrial plants. This reduces the need for expansion. All of this could ultimately stabilize grid usage fees "at today's or even lower levels." But cheaper electricity requires, first and foremost, smart meters, which are currently still very rare.