Series of Articles: Dynamic Electricity Tariffs – Dynamic electricity tariffs für households

Unlike a traditional electricity supply contract, where the price per kilowatt-hour (kWh) consumed remains constant, the price in dynamic electricity tariffs is flexible – it changes over time. This flexibility allows end consumers with electric vehicles or heat pumps, for instance, to benefit from dynamic electricity tariffs by using electricity during periods of low prices.

Starting 1 January 2025, all electricity providers must offer dynamic electricity tariffs in Germany. However, over 80% of German households still feel poorly informed about dynamic electricity tariffs [1]. Many electricity providers are also still determining how to design their dynamic tariffs effectively in the future.

For these reasons, our articles provide information on dynamic electricity tariffs for different consumer groups. We explain who can benefit most from specific tariff designs and how these tariffs can be structured.

Do you need support with dynamic electricity tariffs’ methodological and procedural development? Feel free to contact the experts at FfE listed below!

In our first article series, “What types of tariffs exist, what are their advantages and disadvantages, and what technical aspects need to be addressed?” we compared the three tariff types: constant standard, time-variable, and dynamic. The following article will look at dynamic tariffs for household customers.

Dynamic electricity tariffs are particularly interesting for so-called flexible consumers, i.e., households with large energy consumers such as heat pumps or electric vehicles. Like constant standard tariffs, dynamic electricity tariffs include base and energy prices.

The base price is a fixed amount, usually paid monthly, independent of actual electricity consumption. According to the German Federation of Consumer Organizations, the range of base prices for dynamic electricity tariffs is similar to that of constant standard tariffs, ranging between €6 and €23 [1].

The energy price is charged per kilowatt hour (kWh) consumed. It is based on the so-called cost of procurement by the electricity supplier. These costs include electricity prices at the stock exchange, taxes, fees, and surcharges. For dynamic tariffs, the fluctuating electricity prices on the market are passed on to consumers via the energy price. Thus, the energy price contains a dynamic component (electricity price) and a fixed component (fees, taxes, grid charges).

Product Design

In addition to traditional energy suppliers, startups increasingly offer dynamic electricity tariffs. The designs of dynamic electricity tariffs are diverse.

Most providers calculate the variable portion of the energy price based on the hourly wholesale prices at the EPEX Spot DE for the following day’s delivery period (Day-Ahead). This means that consumers are informed of their hourly electricity prices for the next day, which varies depending on the situation throughout the day. Providers also add a fixed surcharge to the wholesale prices. However, this is named differently by each provider and is only sometimes transparent [1]. Others charge a percentage of the savings compared to the standard tariff. Providers can thus secure their profitability through both the base price and additional surcharges on the energy price.

Due to these options, providers can financially secure themselves more through the base or energy prices, resulting in diverse tariff designs. Some dynamic tariffs also include price caps or guarantees for consumers. However, such guarantees usually come with specific conditions, such as being valid only for a certain period, applying after a particular contract duration, or being limited to a specific portion of electricity consumption (e.g., for charging an electric vehicle). Nonetheless, these features are generally exceptions among dynamic tariffs.

Providers explicitly state on their websites that fluctuating electricity prices pose a higher risk without price guarantees. There are also differences in contract durations and cancellation policies. Most contracts usually have no minimum term and a one-month notice period.

(Price) Transparency

Given that over 80% of German households need to be better informed or entirely uninformed about dynamic tariffs, providers should pay particular attention to presenting comprehensive information on the advantages and disadvantages of these tariffs [2].

One major drawback of many tariffs is the need for price transparency and the complex structures, making it difficult for consumers to compare or understand tariffs fully. This often deters potential customers, as the tariff may need to be better understood, or its cost advantages are not immediately apparent.

There is also a risk that consumers choose a tariff without fully understanding its design and may face unexpectedly high bills. Clear information and price transparency can become a competitive advantage for providers.

One way to educate consumers about dynamic electricity tariffs is to provide a simple comparative calculation for three typical households, with and without flexible consumers, to demonstrate which tariff is suitable for which customers. Such examples can help clarify cost advantages, as shown in studies like this one [1].

Providers of dynamic electricity tariffs display prices on their websites or apps. For example, they show the average monthly daily, daily, and hourly prices for the following day in graphical form. The prices for the following day are usually published in the afternoon. However, providers differ in how they present the data. Some only display the dynamic wholesale prices, while others include the fixed component.

Many providers also offer price alerts to notify consumers of extremely high prices in advance, such as in late June 2024 due to a technical fault or in early November 2024 due to low renewable energy production [3, 4].

Summary: Mutual Requirements

• Providers: Must develop competitive, transparent tariffs, provide technical infrastructure, and meet regulatory requirements without jeopardizing their profitability.
• Consumers: Seek tariffs that save costs, are easy to understand, offer convenience, and promote environmental consciousness – all with minimal risk and technical hurdles.

A balance between the interests of both parties is essential for successfully establishing dynamic electricity tariffs in the market.

Our Services

The FfE supports energy providers in the systematic and strategic development of dynamic electricity tariffs and their design. Our services include:

• Analysis of target groups and consumption behavior, e.g., to create synthetic consumption profiles for each target group.
• Development of flexible tariff models tailored to specific target groups.
• Integration of regulatory requirements and conceptualizing technical needs, such as smart meter solutions.

We also offer process optimizations for introducing dynamic tariffs and develop tools for price calculation, short- and long-term price forecasts, and communication.

We help providers design attractive and competitive dynamic tariffs through tailored consulting and successfully position them in the market.

Further information:

[1] Marie Wettingfeld, Simon Meemken, Florian Zerzawy unter Mitarbeit von Hana von Loock und Selina Surek: „WIE VERBRAUCHERFREUNDLICH SIND DYNAMISCHE UND VARIABLE STROMTARIFE?“, Gutachten des Forum Ökologisch Soziale Marktwirtschaft e.V. im Auftrag des Verbraucherzentrale Bundesverband e.V., 30.10.2024. Link:2024_VZBV Dynamische Tarife_final_0.pdf

[2] Verbraucherzentrale Bundesverband e.V., “Dynamische Stromtarife: 19 Millionen Haushalte im Dunkeln“ 30.10.2024. Link: Dynamische Stromtarife: 19 Millionen Haushalte im Dunkeln | Verbraucherzentrale Bundesverband

[3] Scarlet Schmitz „Technische Panne an der Strombörse: Preis im Day-ahead-Markt steigt auf bis zu 2,33 Euro pro Kilowattstunde“, pv magazin, 28.06.2024,  Link: Technische Panne an der Strombörse: Preis im Day-ahead-Markt steigt auf bis zu 2,33 Euro pro Kilowattstunde – pv magazine Deutschland

[4] Sandra Enkhardt „Dunkelflaute lässt Börsenstrompreise im November steigen“, pv magazin, 03.12.2024, Link: Dunkelflaute lässt Börsenstrompreise im November steigen – pv magazine Deutschland