Away from the expensive basic service

For 20 years everyone in Germany has been able to switch electricity providers and thus save costs. But not all consumers take advantage of this opportunity. Why not?

An electricity meter in a private household.

Selectricity and gas customers in Germany have a wide choice. On average, you can choose from well over 100 providers – and if you do it skillfully, you can save a lot compared to the expensive basic supply of your traditional supplier. This has been possible for 20 years: On April 24, 1998, the “Law on the New Regulation of Energy Industry Law” came into force. Until then, the sale of electricity and gas was a strictly isolated business operated by municipal utilities and other suppliers with a territorial monopoly.

“It was only through liberalization that the consumer became a customer with a choice”, says Thomas Banning, head of the Düsseldorf eco-supplier Naturstrom, who has been with us from the start. But by no means all use this option. According to the Federal Network Agency, a good 30 percent of households still had a particularly expensive basic supply contract for electricity in 2016. The change of provider is “really very easy”, assures network agency boss Jochen Homann. He has already done it himself – like around 3.6 million households in 2016 where the change was not the result of moving.

Electricity suppliers make a very good profit from the basic supply

“Many consumers with little money are stuck with basic services. That’s not good, ”says Udo Sieverding, energy expert at the consumer center in North Rhine-Westphalia. For the electricity supplier, on the other hand, this is a profitable business. “You earn very well on the basic service.”

The price range between the local basic supply and the cheapest tariff has grown significantly in recent years, as the comparison portal Verivox has calculated: With an annual consumption of 4000 kilowatt hours from an average of 100 euros in 2007 to now 470 euros. “The competition works very well in sales,” says energy economist Prof. Andreas Löschel from the University of Münster. There is an “ever greater differentiation of the offers”.

Expectations that liberalization would lead to falling electricity prices were fulfilled only two years after the start. Since then, the tariffs have risen sharply. If an average household had to pay the equivalent of 17 cents per kilowatt hour according to figures from the industry association BDEW in 1998, it is currently almost 30 cents. The price drivers are taxes, levies and levies as well as the network charges that private consumers have to pay in addition to the actual kilowatt hour price. They now account for around 78 percent of the electricity bill.

Despite the rising prices, the opening of the markets has a predominantly good reputation among customers. In a Yougov survey for the provider Lekker Energie, 79 percent of those questioned agreed with the statement that consumers would have benefited.

The growing market for electricity discounters

“Ultimately, the competition for electricity prices is in the sales margin, which, however, makes up a very small part of the electricity price,” says Löschel. “That hardly affects the end customer.” A reform of the entire tax and duty system in the energy sector is necessary. It could “bring further dynamism to the market and spur competition”.

It’s already tough and has attracted some black sheep. The bankruptcies of Teldafax and Flexstrom, which sold hundreds of thousands of customers cheap electricity against prepayment, were spectacular. “The advance payment model has been out of the market since the bankruptcies of Teldafax and Flexstrom,” said consumer advocate Sieverding. Today, bonus payments or tablet computers are used as promotional gifts.

The energy giants are also active in the growing market of electricity discounters – for example Eon with the brand E for simple, the RWE subsidiary Innogy with Eprimo or EnBW with Yello. All have eco tariffs in their offer. According to the network agency, around ten million households are now using green electricity.

But a lot of things are not real eco-energy, complains Naturstrom boss Banning. “The term is not standardized by law, so much can be interpreted into it.” Of the consumers who switched providers via the Check24 comparison portal last year, only 3.5 percent opted for sustainable green electricity from providers who promote local green electricity production . The green electricity pioneers therefore also report stagnating business with household customers. “The premium green electricity market has been grazed,” says Naturstrom.

In the gas sector, competition only got going ten years ago when the Federal Cartel Office forced the large gas companies to open their networks. In contrast to electricity, no alternative providers had previously made it onto the market. In the meantime, however, there are more than 500 gas suppliers who offer national tariffs. Around 1.5 million customers switched providers in 2016, more than ever since the liberalization of the market.