High German power prices, low monthly bills?

Energy Transition

According to the most recent data, German retail power rates are the highest in the EU along with Denmark’s. The monthly power bill is, however, exaggerated in reports. Craig Morris investigates.

After years of coming in second behind Denmark, Germany has apparently closed ranks and is now tied with the Danes in the unpopular competition for the highest retail power rates in Europe.

According to “Strom Report” (based on Eurostat data), Danish and German retail consumers paid 30.5 Euro cents for a kilowatt-hour of electricity in 2017.

However, the numbers are estimates; slightly different ones are also circulated. Consumer portal Verivox, for instance, put the average price in 2017 at 28.18 Euro cents (in German). Whatever the exact number is, Germany is certainly near the top.

Estimates for the average power bill are also circulated but seem systematically exaggerated. For instance, the German article linked to above comes to a monthly power bill of 93.93 euros based on 4,000 kWh of consumption annually.

That figure is even higher than the usual 3,500 kWh annually for a “three-person household” – the metric usually used by German utility umbrella organization BDEW (in German).

Both estimates are significantly too high

Germany has an estimated 41 million households and a population of 82 million people, putting the average number of people per household at exactly two. A three-person household is larger than the average.

More importantly, the number of kilowatt-hours consumed in residential buildings is also considerably lower.

In the chart below, we see that German households consume some 130 TWh of electricity annually.

Divide that by 41 million households, and you get 3,171 kWh. At 30.5 Euro cents per kilowatt-hour, the average German household thus spends 967.07 euros on electricity annually – and 80.59 euros monthly.

Now here’s the fun part: the EU does not gather statistics on monthly residential power bills, so we cannot easily compare.

“Strom Report” tries to put the matter into context using the data available, so we see that German retail power prices (not bills!) are in the middle of the field once account is taken of purchasing power.

But even that comparison does not take account of actual spending – the bills, not just the prices.

I have also written here about households not being able to pay their energy bills, and once again Germany does not perform so poorly. And note that “energy bills” concern more than just electricity: heating oil, natural gas, etc.

For comparisons of average German power bills with those in other countries, you would therefore have to perform the entire calculation above for each country: find out the amount of electricity consumed by households, divide that by the number of households, and then multiply that amount by the price.

It’s rather exhausting work – more suitable for a complete study than a blog post – so I merely refer you to our comparison of German and US power bills with data from 2013.

With generally the same creature comforts, German power bills are roughly in line with those in the US after an adjustment is made to remove consumption for air-conditioning, which German households don’t have (or need).

Why is all this so important?

The distinction between prices and costs (bills) is crucial because high prices are an incentive for efficiency and conservation, both of which are integral to the energy transition. Obviously, the debate about retail power rates in Germany is contentious.

Specifically, energy-intensive industry is partly exempt from grid fees and the renewables surcharge, leaving households to shoulder more of the burden. The design of power prices in Germany is not ideal, and there are good arguments to be made for lowering the retail rate in particular.

But high prices are not the end of the world either, at least not in wealthy countries like Germany. For instance, roughly three quarters of the price paid for gasoline in many European countries is taxes.

High prices at the pump have steered consumers towards more efficient cars, as a comparison with the US shows. Likewise, Germans pay more attention to power consumption when purchasing appliances because they know that their power prices are high.

However you come down on the issue of how high electricity rates should be, I think we can agree on one thing: German media and utility organizations should stop overestimating the average monthly power bill in Germany.