Rising energy costs: How the high gas price comes about

The wholesale gas price has more than tripled since the beginning of the year. Prices for private households also rose significantly in the first half of the year. Why does gas suddenly cost so much and what is the price made up?

Rising energy prices are a key reason for the current highest inflation rate in decades. In the first half of the year, private households had to pay 4.7 percent more for electricity and gas than in the second half of 2020. Natural gas cost consumers an average of 6.41 cents per kilowatt hour between January and June.

Extreme rise in wholesale gas prices

Gas traders are shaking their heads at this development. They have never seen the market go so crazy. The price on the spot markets has more than tripled this year. In wholesale, gas currently costs more than 70 euros per megawatt hour. In the Corona crisis, the price was still five euros at times. “Nobody saw that coming in this drama,” says expert Hanns Koenig from the analysis company Aurora Energy Research.

The gas crisis is particularly bad for Great Britain. There is a threat of supply bottlenecks. Nine providers have already gone bankrupt. 1.5 million Brits have to sign new, more expensive contracts.

The gas crisis is also affecting Germany

It should not be quite as dramatic in Germany as it is on the British Isles. But the price of gas has also risen dramatically in this country. With DEP Deutsche Energiepool, the first gas supplier gave up and stopped gas sales.

Is Gazprom and the Russian government, which has cut gas supplies to Germany, to blame for the gas price explosion? Or have the utilities gambled away when shopping? To answer these questions, we first need to understand how the gas market works.

Three factors determine the gas price

For private households, the monthly gas price is calculated from three factors: the procurement costs, the fees for network use, and taxes and duties. Depending on the data source and the underlying consumption, the proportion of these three factors is somewhat different. According to the Federal Association of Gas and Water Management (BDEW), procurement costs made up 41 percent of the gas price in 2020. 33 to 35 percent of the remainder was accounted for by taxes and levies and a good quarter (24 to 26 percent) by network charges.

According to the joint monitoring report 2020 by the Federal Network Agency and the Federal Cartel Office, procurement costs made up a good 49 percent of the total price last year, taxes 24.6 percent and network charges 23.3 percent – plus small proportions for the costs of measurements / measuring points and for the license fee . So: The respective gas supplier collects almost half of the gas price, the remaining portion is shared by the public sector and the network operator.

taxes and expenses

The state levies a gas tax of 0.55 cents per KWh on taxes and duties for deliveries to household customers. In addition, there is the concession fee that goes to the municipalities. In addition, the state collects 19 percent VAT.

Network charges

The network charges are levied by the network operator, as the latter is obliged to pay a fee to the state for the use of the supply access and the metering device. The network charges vary greatly depending on the location. The prices can differ from one another by up to 600 percent.

While, according to BDEW, the network charges rose by only two percent in 2021 to 1.64 cents / KWh for single-family houses and 1.33 cents / KWh for multi-family houses, taxes and duties increased significantly – by 0.5 cents / KWh to 2 .03 cents / KWh for single-family houses and 1.92 cents / KWh for multi-family houses. The reason for this is the introduced CO2 price. This is 25 euros per tonne of CO2 emitted.

Procurement costs

However, the greatest price fluctuations are in the procurement costs. They depend on the demand on the world market, weather conditions and geopolitical crises. The rapid recovery after the Corona crisis drove the demand for energy, especially gas, significantly. Above all, liquefied gas (LNG) was hardly ever delivered to Europe; it was mainly sent to Asia because more was paid there.

The unusually long and cold winter in many regions of the world has resulted in stocks being relatively low. At the moment, gas storage facilities in the EU are only filled to around 71 percent, and in Germany only 64 percent.

Wholesale purchase prices have tripled

The global demand for gas is reflected on the European electricity exchange. According to the comparison portal Check24, the exchange price per megawatt hour of gas climbed to a record high. At over 44 euros, gas is more expensive than ever. The procurement prices for natural gas on the futures market have tripled since the beginning of the year, and the prices for short-term procurement even quintupled. In August 2020, one megawatt hour of natural gas still cost 4.80 euros in wholesale, it is now around 75 euros.

“The procurement costs that energy suppliers have to pay for electricity and gas have risen significantly in the past few months,” complains Kerstin Andreae, chairman of the BDEW management board. The import prices for natural gas, which are determined by the Federal Office of Economics and Export Control, rose by 42 percent from January to July alone. As a result, utilities had to stock up at higher prices. Or they have to do it now, as winter approaches. Some experts believe that the utilities gambled away. They would have waited a long time in the mistaken hope that prices would fall.

Often, utilities have long-term insurance

Often the gas suppliers are often secured in advance via futures markets, so that the price increase only later has a full impact on the company portfolio, explains Andreas Schroeder from the price information service for energy trading, ICIS. It will take some time before the significantly increased wholesale prices have an impact on end customer prices.

“Energy suppliers usually calculate in the long term,” says Verivox’s energy expert Lundquist Neubauer. “That means short-term price peaks on the spot market then generally have a rather minor influence overall.” Those who buy a lot on the spot market, however, will be hit harder by such price peaks than suppliers who buy very long-term.

Some utilities are announcing the first price increases

It is already becoming apparent that suppliers are passing the higher procurement costs on to end consumers. According to Verivox, 38 gas providers have announced price increases averaging 13 percent for September, October and November. “We expect a bigger wave of gas prices in autumn,” says Verivox energy expert Thorsten Storck.

According to Check24 evaluations, even 50 suppliers have already increased their prices or will be turning the price screw. The gas bills are likely to be 11.5 percent more expensive on average. According to Check24, a sample household (20,000 kWh) currently pays 1516 euros a year for gas.