EXPLAINED: Why German electricity bills are hitting record highs

According to the price comparison website Verivox, the price a consumer pays per kilowatt-hour of electricity jumped to 30.4 cents this month, marking a 5.7 percent increase since last year. This increase means that consumers have never paid so much for their electricity.

At the same time, it follows a trend seen since the start of the century. Since the year 2000, household electricity bills have on average doubled in price.

A three-person household in Germany now pays an average of €93 a month on their electricity bill, up from €41 twenty ears ago.

Average electricity bill for a 3-person household (1998-2021). Mehr Statistiken finden Sie bei Statista

READ MORE: German consumers ‘pay the highest electricity prices in Europe’

Financing renewables

One of the main factors behind this growing burden on households is Germany’s public investment in renewable energies, which has been financed through a tariff called the EEG system. 

The system promises fixed prices to wind and solar providers to try and stimulate growth in the sector. But it has always been controversial because big industries have been exempt from paying it, meaning private households have had to pick up the tab.

 "The sharp rise in electricity prices over the past 20 years is primarily due to steadily increasing taxes, levies and surcharges," says Thorsten Storck, energy expert at Verivox. "As long as the government does not readjust here, households will continue to pay high electricity costs in the future."

The good news is that, with solar and wind now well established on the energy market, the main political parties have signalled an intent to end the EEG in the near future.

Back in July, Economics Minister Peter Altmaier of the centre-right CDU promised to abolish the EEG by 2025, saying that "it's not about less climate protection, but more climate protection combined with more social fairness. Abolishing the EEG surcharge can be a first step in this direction."

SPD Chancellor candidate Olaf Scholz has also pledged that "the price of electricity must fall.. ...we want the EEG levy for renewables to stop making the price of electricity more expensive. A family would then save over €300 a year."

Rising prices on energy exchanges

The most recent rise in the cost of electricity is not directly attributable to renewable subsidies though, experts say.

Instead higher prices on energy exchanges are driving up costs for consumers. At the Leipzig-based European Energy Exchange, where suppliers buy electricity from producers, the cost of a megawatt hour of electricity has gone up by 12 percent since the start of the year.

READ ALSO: Electricity bills in Germany – how to keep your costs down

There are at least three significant factors driving this price rise, der Spiegel reported earlier this week.

Firstly, power plants are having to pay increasingly expensive charges on their C02 emissions. Under the latest EU rules, each tonne of C02 emitted now costs an energy producer €54.

Secondly, renewables have had a bad year so far due to a lack of wind and sun. Low winds and overcast skies in Germany have meant that renewables have produced just 87 terawatt hours of electricity compared to 103 terawatt hours by the same point last year. With supply not able to keep up with demand, prices have gone up. 

Lastly, gas supplies in Europe’s gas storage facilities have reached historically low levels in recent months. This has led to a sharp increase in the cost of gas, which fuels a significant percentage of Germany's power plants.

The drop in gas supplies is partly due to the long, cold spring of 2021 but it also has to do with a drop in supplies from Russia. Some observers suspect that Russian state gas company Gazprom has turned off the taps in order to pressure Europe into finishing the controversial Nord Stream 2 pipeline.

"The prices that power plant operators have to pay for pollution rights have recently risen significantly; by around 60 percent since the beginning of the year. In addition, higher fuel costs are weighing on wholesale prices. This increase is gradually being passed on to consumers," says Thorsten Storck.

SEE ALSO: Germany set to finish controversial Russian pipeline despite US protest

We updated our article to change the first statistic from €30.40, as was originally published, to 30.40 cents.