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“Now get the final bill”: How the Kremlin is making our electricity more expensive

In addition to heating costs, electricity prices are also rising sharply. In an interview with ntv.de, Tobias Federico, Managing Director of the consulting firm Energy Brainpool, explains how much more consumers have to pay, why and for how long. The market expert does not fear a blackout.

ntv.de: What price increases should consumers expect for electricity?

Tobias Federico: Since the suppliers buy differently, it is difficult to estimate what the consumer can expect. But we expect at least 40 cents per kilowatt hour (kWh) by the end of the year, an increase of at least a third. However, this can vary, depending on the purchasing strategy of the energy supplier. In 2024 we then expect a further increase of one third.

What does that mean at the turn of the year in euros?

A standard household with two people consumes around 3600 kWh per year and currently pays around 1100 euros for it. A price increase by a third means about 350 euros more, converted to around 30 euros a month. A family of four uses an average of around 6000 kWh per year, which means an increase of around 600 euros compared to the previous 1800 euros, or 50 euros per month.

Tobias Federico

(Photo: Steffen Jaenicke)

How much more are consumers paying now?

It is difficult to say which suppliers have already adjusted their prices. Most don’t do this until the end of the year.

How are the prices determined?

Consumers have different pricing structures than the wholesale market and most agree on a tariff a year in advance. So right now, consumers are paying the wholesale level of last year, before the Ukraine war. Therefore, the price is currently 28 to 30 cents per kWh for the end customer. The pure energy price share of this, i.e. not for taxes and other levies, was recently around 5 cents per kWh. This has meanwhile increased eightfold on the wholesale market to 40 cents. But that’s not a shock, consumers don’t have to pay for it right away. Because the energy suppliers buy in bits and pieces, the end customer pays an average price over the past one and a half to two years.

Why is electricity so expensive?

Wholesale prices depend primarily on primary energy prices, which in turn are dominated by natural gas. Due to the loss of Russian pipeline gas and the tense energy situation worldwide, gas prices have risen exorbitantly, they have increased sixfold. As a result, other energy sources will also become more expensive; the prices for hard coal, for example, as an alternative to gas, have also risen sharply. In the next step, this also means that the CO2-Emission certificates, which also determine the price of electricity, become more expensive. Their prices have doubled. So we have a tense situation with all energy sources.

What role does gas play in electricity production, why is it driving up electricity prices so much?

This is due to the electricity market design. The last power plant technology that covers the electricity demand determines the electricity price. In this case, these are the gas-fired power plants. Gas has a significant share in total electricity generation, around 20 percent; only not with the total natural gas consumption, there it is around 10 percent.

Could the price increases be avoided and if so, how?

Due to our high level of energy dependence on Russia, this can no longer be avoided; it would have been possible before by diversifying the energy supply countries. Now only energy efficiency and saving measures can help: use less electricity and natural gas.

What do you say about the nuclear power debate – should we let nuclear power plants run longer or even expand nuclear power again?

For me, this is a side fight that drains a lot of energy. Because we don’t have an electricity problem, we have enough power plant capacity to generate electricity. We have a heat problem: Two thirds of the natural gas is used to generate heat, either directly in thermal baths – i.e. fuel boilers, combined heat and power plants and gas floor heating – or indirectly in electricity generation. When generating electricity, we also use the waste heat, this is combined heat and power: Gas-fired power plants produce electricity and heat, which is used in the district heating network. This is not the case with nuclear power plants, they only generate electricity and no waste heat that we actually use. That’s why it doesn’t do us any good, except that we would substitute electricity. According to our calculations, if we let the nuclear power plants continue to run, we would only save one percent of natural gas.

What do you think of an electricity price cap, as demanded by the left?

A cap initially dampens the costs for households. But the prices are caused by the wholesale market, this difference has to be financed somehow. If household prices are capped, the only thing left is industry, which would then pay higher electricity prices and therefore make their products more expensive. Sooner or later, the price increases will reach the end consumer.

How long do we have to adjust to rising electricity prices?

In 2025/26 the situation is likely to ease significantly. Electricity prices will continue to rise, but not exorbitantly for households. Because at the moment we have a gas shortage due to a lack of alternative sources of supply. However, there are alternatives on the world market, we only lack landing capacities. When the LNG terminals are ready, we can buy liquefied gas on the world market. It’s still more expensive than Russian pipeline gas, but only twice, not six times as expensive as it is now with the panic prices. Then the market will relax, and with lower gas prices we also expect lower electricity prices. It just takes two or three years for these to reach household customers because of the piecemeal purchases, as I explained at the beginning.

To what extent are electricity prices a burden on the economy, is production at risk, as is the case with gas?

In certain production areas, gas cannot be replaced by another energy source, which puts production at risk in the event of a gas shortage. When it comes to electricity, on the other hand, it is purely a matter of cost. However, I can imagine that certain sectors will struggle financially if they cannot pass the higher prices on to downstream products. But that varies from company to company and not necessarily industry specific. Energy-intensive sectors such as glass and ceramics production, aluminum or steel are of course more affected. Like households, it is up to them to increase energy efficiency and save.

Don’t worry that electricity could become scarce. Why then did Economics Minister Robert Habeck commission a stress test of our power supply?

Stress tests are an essential part of the energy transition, so initially nothing special. The framework conditions can change due to the new primary energy source situation. Since we are getting coal-fired power plants from the reserve in Germany, I still don’t see a capacity problem. I still don’t prepare for a blackout. What is new, however, is the tense nuclear power situation in France, which has worsened due to low water levels because the power plants need river water for cooling. Regardless, they have technical problems. France is already dependent on electricity imports, including from Germany. The situation could get worse in winter because electricity is used for heating in France. This is now also taken into account in the stress test. Nevertheless, I am confident that our power supply will pass the stress test. In autumn, the water levels will rise again. It could only become problematic if we get a cold spell in Germany and France at the same time.

What do you think is the best way to prevent a bottleneck?

Here we are again with the topic of energy efficiency. The increased demand for fan heaters is also having an effect on the power supply, which is something of an unknown. At the moment I don’t see this as critical, but the situation could become tense if more people buy fan heaters and actually heat with them.

Would it make financial sense to switch to electricity for heating?

No, heating with electricity is significantly more expensive, the costs are twice as high despite the rise in gas prices. It is also completely inefficient in terms of energy. If gas has already been burned to generate electricity and we then use this electricity again to generate heat, this is pointless in terms of energy. This is why gas for heating makes more sense in terms of energy. If we get a gas shortage, I don’t think households would be really affected either. We’ll all be a bit cold this winter, but nobody will freeze to death because of it.

But our prosperity will crumble, right?

We totally underestimated the value of diversification and became overly dependent on Russia. We have been very much guided by the dictates of cheap energy prices and have benefited from cheap pipeline gas from Russia for decades. Other countries like Japan have imported liquid gas twice as expensive – we, on the other hand, are now getting the final bill. The current situation is also a failed heat transition. We always talk about the turnaround in transport and energy, but we haven’t bothered about heat efficiency measures and a heat turnaround. The turning point should come first in the electricity sector, then in transport, and only then in the heating sector. Now we realize that a different order would have made more sense.

Christina Lohner spoke to Tobias Federico

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