How the price of electricity arises – and how it could be regulated

With the sharp increase in electricity prices, consumers face another cost factor after the additional cost of the gas surcharge. Does the lack of gas have anything to do with high electricity prices? Only partially. Natural gas is primarily used for heating – melting glass or heating houses.

Natural gas accounts for about 15 percent of electricity production in Germany. But gas-fired power plants are actually reserves to compensate for other generators’ outages and reductions in production. They are launched in minutes when the sun, wind and water do not provide enough energy.

There are more than 90 grass power plants in Germany, which together can produce more than 100 megawatts. But now it is they who determine the price of electricity European Electricity Exchange (EEX) set in Leipzig. Because high gas prices make electricity from gas-fired power plants particularly expensive at the moment.

The winners are the oil and gas companies and, above all, the suppliers renewable electricity, operators of solar systems, wind turbines and hydroelectric plants. Just because of the way prices are formed in the stock markets, they have now become unwitting profiteers of the crisis.

Electricity is the same everywhere, an exchangeable product, whether it comes from wind or nuclear power. If high production costs, such as higher gas prices, require a company to charge a high price per megawatt-hour in the market, then a company that can produce at a lower price will naturally charge the same to increase its price. of profit.

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The principle is called marginal cost pricing. In a sense, marginal cost is the contribution margin that a company needs to generate electricity and finance future investments. This principle is also described as a merit order model, like price ranking.

First, the electricity with the lowest marginal cost, i.e. produced from renewable sources, is considered. Higher cost power plants are then successively added until demand is met. The price offered at the end of the trading period for the most expensive electricity in this period is valid for everyone. These highest-cost suppliers, currently gas plant operators, then only have a small profit margin, while suppliers with lower production costs collude. Initially, the aim was to remove expensively produced electricity from the market.

Political rules are needed to break through this market economy. Because the market itself does not know the rules. It is for this reason that Federal Economy Minister Robert Habeck and EU Commission President Ursula von der Leyen recently structural reforms of the electricity market announced “We still have an electricity market that is set up the way it needed to be twenty years ago when we started deploying renewable energy.” […] Today the market is completely different and this market system no longer works,” von der Leyen said on June 8. against the European Parliament.

The fact that it doesn’t work is partly because the countries’ power grids are tightly interconnected, there are technical problems in generating electricity, and last summer was too hot and too dry. First of all, technical crises have now coincided with extreme weather conditions, so why not global warming this is likely to be the case in the future.

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Since last winter, Germany has been exporting far more electricity to neighboring countries than before because of the shortage there. In France, for example, only 32 out of 56 nuclear reactor units are still generating electricity. In addition, some active ones have to reduce productivity because there is not enough water in the rivers to cool the plants.

However, there is also a water shortage in Switzerland and Austria. The dams are too empty for the hydroelectric plants to produce enough electricity.

As suspected by the Gas Industry Association, exported electricity is now apparently produced in gas-fired power plants. It is impossible to say exactly, because electricity is the same everywhere. To prevent the price of electricity from getting out of hand, measures must be taken.

The simplest would be to simply reduce the demand, so simply save electricity.

The Federal Environment Agency (UBA) already has one in January a wide catalog of saving tools for all sectors – traffic, industry,…

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