Connection between the price of electricity and network charges
- The price of electricity
- Network charge, metering and meter operation
- Further information
The chart shows an example breakdown of the price of electricity for household customers in the standard use case in Germany with an annual consumption of 3,500 kWh. The percentage figures shown are volume-weighted averages across all tariffs as at 1 April 2020.
The price of electricity
The price of electricity comprises:
- the costs of electricity procurement and supply, and the profit margin (26% in total)
- taxes (23%) from the value-added tax (16%) and the electricity tax (7%)
- the net network charge (20.4%): the charge for using the network
- metering and meter operation (2.3%): charges for the cost of billing and the metering and control devices required for technical reasons (eg meters) and for meter reading
concession fees (5.6%)
the surcharge payable under the Renewable Energy Sources Act (EEG) (21.2%)
the surcharge payable under the Combined Heat and Power Act (KWKG) (0.9%)
the surcharge payable under section 19 of the Electricity Network Charges Ordinance (StromNEV) (0.8%) and
the surcharge for interruptible loads (0.02%).
Network charge, metering and meter operation
The ruling chamber is responsible for overseeing the network charge and the network operator's costs for conventional metering and meter operation. There will be changes to this in the future following the roll-out of modern metering equipment and smart metering systems under the Metering Act (MsbG). Modern metering equipment and smart metering systems account for around one fifth of the price of electricity for household customers.
What is a network charge?
The network charge is the price for use that every network user that transports electricity through the network has to pay to the network operator (similar to how a postage stamp entitles a letter to postage regardless of the distance). Network charges are independent of distance; they grant access to the electricity transmission and distribution system, not to an individual electricity generating plant. The access network operator levies the network charges, which include the costs of all upstream network levels. The charges are then paid by each downstream network operator in turn by paying network charges to its upstream network operator.
The relevant legal provisions for the network charges are section 20 of the Energy Industry Act (EnWG) and Chapter 3 of the Electricity Network Charges Ordinance (StromNEV).
The network charge is made up of an hourly rate in cents per kilowatt hour (ct/kWh) or euros per megawatt hour (€/MWh) for the energy drawn and a capacity price in ct/kWh or €/MWh for the maximum capacity used. There is no capacity price for households at the low-voltage level without interval metering, instead it is more usual for there to be a standing charge.
Who determines the network charge?
The network charge cannot be determined by market forces in a competitive market because electricity grids are natural monopolies. This is why the network charge is regulated and has to be published online by the network operator. The regulated components (the network charge plus charges for metering and meter operation) account for around one quarter of the price of electricity for household customers. The network charges are based on revenue caps that are set by the regulatory authorities. These caps are derived from the costs for network operation, maintenance and expansion, which are verified by the regulatory authorities, plus a regulatory profit (referred to as the rate of return on equity) and annual adjustments. These regulated costs form the basis of the prices that the network operators are allowed to charge the network users for transporting and distributing energy. This means that a network operator may not earn more through the sum of its network charges than the total revenue specified by the authority.
There are several steps involved in determining the network charges. After the verified costs are allocated to the cost centres (see Annex 2 StromNEV), the costs are then allocated to cost units (see Annex 3 StromNEV). Using the annual peak load of the network or substation level these cost units are applied to the specific annual costs. The charges (a capacity charge and a unit charge) are then derived from the specific annual costs using what is known as the concurrency function (see Annex 4 StromNEV).
Date of modification: 2021.09.16