Forecast Tool for the Development Framework of Electricity Prices for Households and Heat Pumps in Germany

In Germany, the price development of electricity for households and heat pumps is frequently and controversially discussed. The discussion often focusses on the tension between a fair distribution of the costs of the energy transition and the appropriate incentives of decarbonization for private consumers. The development of electricity prices for households and heat pumps is crucial to evaluate the potential costs from the consumer’s perspective and to consider existing and new business models within the framework of the energy transformation.

Prices in Flux: A Continuously Updated Electricity Price Forecast

Due to constantly changing political and energy economic conditions, the forecast logic and methodological approaches need to be updated regularly. Current examples include the elimination of the EEG surcharge and the announcement of a possible capacity market from the federal government’s power plant strategy [1], [2].

Building on the method described in the FfE Discussion Paper “Development Framework of Household Electricity Prices in Germany” (in German) from 2021, the FfE revisited this topic in the spring of 2024 as part of a project. The result is an Excel tool developed and reviewed by experts from the energy industry.

Consistent Development Paths for Future Household Electricity Prices

Based on analyses and a range of input data, the tool forecasts the possible developments of the different components of household electricity prices for the future. Each price component is analyzed separately, and its possible development is methodically processed. This allows the creation of two drastic development paths – a maximum and a minimum price path – to represent the generally expected development framework. Additionally, a plausible path (best guess scenario) of price development can be created. The development of price components is kept consistent with each other for each path. In the same manner, consistent development paths for electricity prices for private heat pumps can be designed. For heat pumps, different assumptions are made for some price components compared to the traditional household electricity price.

The following Figure 1 illustrates the methodological approach and shows an exemplary resulting development framework.

The current methodology involves separately and methodically analyzing the following price components in detail:

• Energy Procurement
• Grid Usage Fees (GUF)
• EEG Surcharge
• Capacity Market Surcharge
• Other Surcharges

The basis for developing the different paths is derived from the results of the FfE’s energy system model ISAaR. In the course of revising the fundamental assumptions and updating the energy system studies, a potential estimation for a capacity surcharge was also developed.

Below, the methodology for estimating a capacity surcharge and the development of the GUF is explained in detail.

How Could a Capacity Surcharge Look in the Future?

Some details about a capacity market in Germany and a potential surcharge that impacts electricity prices are still unknown. Therefore, a method was developed to make an upper estimate for such a surcharge by adjusting various input parameters, assuming that all costs would be distributed over the total net electricity consumption. The calculation is based on a full-cost accounting approach, determining the distributed investment costs as well as fixed and variable costs.

Initial analyses of the developed capacity surcharge show that such a surcharge would have a relatively minor effect on the overall household electricity price. Under current assumptions (Spring 2024), the capacity surcharge remains below 1 ct/kWh for all years.

How Could Grid Usage Fees Develop?

The forecast of grid usage fees (GUF) is a crucial component in predicting future household electricity prices, as GUF currently account for about 20 % to 25 % of the total electricity price depending on the region. Significant investment costs in grid infrastructure and the development of costs for system services represent the largest variable cost factors. For operational costs, it can be simplified that these will not differ significantly from current costs in the future. Besides the cost side, the consumption side is also relevant for the GUF forecast, as the resulting costs are distributed among end consumers.

The following figure illustrates the FfE methodology for calculating future GUF in simplified form. A distinction is made between costs in the distribution network and costs in the transmission network. In both network levels, the framework between maximum and minimum cost development is largely determined by the development of household electricity consumption and the additionally assumed grid expansion and system service costs.

The forecast of GUF shows two opposing effects. The electrification of all sectors generally increases grid costs at all voltage levels. Thus, the absolute costs that must be borne by private households rise in all development paths. Simultaneously, however, household electricity consumption increases in nearly all future scenarios. Because the grid costs to be distributed are related to a unit of kWh electricity, the specific costs per kWh decrease with increasing electricity consumption. Whether GUF actually rise thus depends on the ratio of increasing grid costs to increasing household electricity consumption. In some development paths, this results in the unexpected scenario where future GUF per kWh remain constant or even decrease in real terms.

More Information

• FfE Discussion Paper: Development Framework for Household Electricity Prices in Germany – FfE
• European Day-Ahead Electricity Prices in 2023 – FfE
• ISAaR – Integrated Simulation Model for Plant Deployment and Expansion Planning with Regionalization – FfE

Literature

[1] Federal Ministry for Economic Affairs and Climate Action; Agreement on the Power Plant Strategy from 05.02.2024 BMWK – Agreement on the Power Plant Strategy (accessed on 03.06.2024)

[2] Press and Information Office of the Federal Government; Relief for Electricity Customers from 28.05.2022 Removal of the EEG Surcharge Relieves Electricity Customers | Federal Government (accessed on 03.06.2024)