Electricity and gas prices in Germany are subject to the usual rules of the market economy and depend on supply and demand; they are not regulated by the state. The prices are made up of two basic types of components: components that suppliers can control, and components that suppliers cannot control.

The components that suppliers can control are procurement costs, distribution costs and margins.

Procurement costs are the prices that energy suppliers pay for electricity and gas on the wholesale market. Suppliers can buy energy in advance under long-term contracts or on the short-term spot market. Long-term contracts provide more price stability and planning certainty because the purchase prices are fixed over a longer period of time. By contrast, prices on the spot market can fluctuate more, based on supply and demand. The prices energy suppliers charge their customers therefore depend on their procurement strategy.

Dynamic electricity tariffs, which all of Germany’s electricity suppliers have to offer as of this year, are an exception: the prices customers pay are linked directly to prices on the day-ahead market.

Distribution costs are the second component of household customer prices that suppliers can control. These are all the other costs energy suppliers incur apart from procurement costs, such as staff salaries, rental costs for offices and other buildings, maintenance costs and investments. The margin is the profit suppliers make after deducting all their costs.

Costs that suppliers cannot control are taxes, surcharges, concession fees, the carbon levy for gas, network tariffs and charges for metering and meter operation. Network tariffs, concession fees and metering and meter operation costs vary between network areas and providers.

Energy suppliers usually charge customers a monthly standing charge and a unit rate, which is the price charged for each kilowatt hour of electricity or gas customers use. Customers with a low consumption benefit more from a contract with a low standing charge, while customers with a high consumption benefit more from a low unit price.

A variety of interesting charts showing retail price trends and components is available on the SMARD website at Energy data compact.