ZEW Energy Market Barometer – Environmental Charges and Market Concentration Cause Electricity Price Increase

Energy experts consider the increased environmental charges (such as taxes or feed-in tariffs for renewable energy) as well as the high market concentration in the power generating sector to be the main reasons for the high electricity prices in Germany. These are the findings of recent ZEW Energy Market Barometer among more than 200 energy experts conducted by the Centre for European Economic Research (ZEW) Mannheim.

Whereas environmental charges are designed to give a cost advantage to low-emission electricity production, higher prices due to market concentration are undesirable from an economic point of view. The survey included the following determinants: higher generation costs, the market concentration in the power generating sector, growing transmission costs, price increases due to emission trading and increased environmental charges such as taxes or feed-in tariffs for renewable energy.

About 70 per cent of the experts consider the environmental charges to have risen; 69 per cent think the high market concentration in the power generating sector is responsible for the fact that the electricity prices for private households have been increasing by more than 30 per cent since 2000, as indicated in a survey by the consumer portal Verivox. Approximately 52 per cent of the interviewed experts consider emission allowances to be the source of the grown electricity prices and 42 per cent blame the increased generation costs. 39 per cent see the market power of the providers as one of the most important price drivers for electricity costs and just about 15 per cent credit these price increases to the grown transmission costs.

Among the three main determinants identified by the majority of the interviewed experts, environmental charges an emission trading are explicitly set up as pricing instruments. They are meant to increase the prices of polluting electricity generation and thus give a relative cost advantage to low-emission electricity production. The market concentration in the power generating sector, on the other hand, is considered undesirable from a macroeconomic point of view as long as it overrates electricity prices by tendering offers that are artificially kept on a low level. According to the energy experts interviewed by ZEW, such an abuse of market power on the part of the electricity producers is one of the greatest electricity price drivers. Therefore, the determined proceeding of the German Federal Cartel Office is to be considered justified.

The ZEW Energiemarktbarometer (Energy Market Barometer)

The ZEW Energiemarktbarometer (Energy Market Barometer) is an industry-specific indicator of economic sentiment based on a semi-annual survey of the energy supply, trade, and services industries, as well as regional suppliers in Germany. It comprises the expectations of more than 200 experts concerning short (six months) and medium-term (five years) developments in the national and international energy markets.

Contact

Dr. Ulf Moslener, E-mail: moslener@zew.de