Dynamic electricity tariffs have not paid off for most consumers in Germany over the past five years, according to a sample calculation by the price comparison portal Verivox, reported by the Sunday editions of the Funke Media Group.
The calculation found that it would have been more beneficial for most consumers to regularly switch to a new energy provider and take advantage of the new customer bonus, rather than opting for a dynamic tariff. Dynamic tariffs are supposed to allow consumers to use electricity when the price per kilowatt-hour (kWh) is low.
Starting from next year, energy providers will be required to offer customers a dynamic tariff option. So far, fixed tariffs have been the norm. The new flexible tariffs will see the kWh price change, for example, when the wind blows or the sun shines and solar or wind power plants produce more electricity.
For the calculation, Verivox simulated a one-year contract with the cheapest new customer tariff (with and without the new customer bonus) and compared it to the flexible tariff, assuming the household would regularly succeed in shifting 10 to 50 percent of its total consumption to the cheapest hour of the day.
The result was at least disappointing for dynamic tariffs, with Verivox finding that customers in a new customer tariff in the past five years paid an average of 30.24 cents per kWh (with bonus) or 33 cents per kWh (without bonus). If a household managed to shift 10 percent of its consumption to the cheapest hour, the cost of a kilowatt-hour would be 34.64 cents, at 25 percent it would be 33.94 cents, and at 50 percent it would be 32.76 cents per kWh.
“The question is always, how much of one’s own electricity consumption can be shifted to times when the price is low” said Verivox CEO Daniel Puschmann to the newspapers of the Funke Media Group. “This isn’t possible with a constantly running refrigerator, but for example with a heat pump that can be turned down or an electric car that can be charged overnight. And even with an electric car, dynamic tariffs can be sensible. But they don’t currently make sense for most consumers.”
This could change only when more and more people use electric cars and heat pumps, and more renewable energy flows into the grid, and the price fluctuations increase, and the electricity consumption is intelligently controlled, Puschmann said.
However, Verivox’s analysis found that there have been market phases in the past with strongly falling wholesale electricity prices, in which the dynamic tariffs would have been generally cheaper than the static new customer tariffs. An example of this is the end of the energy crisis, when the wholesale prices recovered from the energy price shock.
And even for customers in the so-called basic supply, a change would have been worthwhile. In a basic tariff, the price was on average 37.35 cents per kilowatt-hour in the past five years, Verivox found. “This means that for such customers, both switching to a dynamic tariff and switching to an over-regional cheap new customer tariff would be worthwhile” the portal wrote in its analysis.
Energy providers will be required to offer dynamic tariffs starting from 2025, as per the new law. The aim is to pass on the electricity price fluctuations from the power exchanges directly to the electricity consumers and to give households an incentive to shift their consumption to times when a lot of electricity is available.
The main reason why dynamic tariffs often don’t make sense is the “very high” fixed costs for electricity, Verivox identified. The average fixed costs for network usage, for example, are 10.8 cents per kWh, and to this come various charges, fees, and state taxes. In total, the fixed costs, including the basic fee and the provider’s margin surcharge (assumed 2 cents per kWh), amount to 19.6 cents per kWh net (around 23 cents per kWh gross).
“These costs would still apply even if the procurement costs were at 0 cents per kWh. This could only change if the fixed costs could be made more flexible” said Verivox CEO Puschmann.
According to Verivox’s survey, in the 50 largest cities in Germany, currently most of the basic suppliers (44) already offer a dynamic tariff option. However, it makes it difficult for consumers to switch to one of these contracts, as the tariffs are often only found through Google or require a consultation appointment, the portal said.
Technically, there is also a hurdle on the consumer side: potential customers would have to replace their old single-phase meters with a smart meter. This would lead to additional costs, Verivox said.
So far, around 500,000 to one million of these devices have been installed in Germany, according to Verivox’s estimates. In addition, dynamic tariffs currently have the potential to become a cost trap. In Germany, electricity prices have skyrocketed in recent days. The reason: a blackout.
Because there was little electricity from wind and sun in the grid, coal and gas power plants had to step in and electricity had to be imported. Higher prices would then also immediately affect the tariff costs, warned Verivox CEO Puschmann. “Currently, consumers are better off in a fixed-term tariff, as the energy provider takes this cost risk by buying the electricity not only short-term but long-term at the exchanges.”
The consumer protection association demands that energy providers offer dynamic tariffs that contain a safeguard against extreme price increases. This would also help the new offer get out of its infancy: a survey commissioned by the Consumer Protection Federation found that for 72 percent of the households surveyed, an additional price safeguard would make a dynamic tariff more attractive.