Energy

Ostrom Price Adjustment

By

Rahel Kunkel

9.11.2021

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9

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If one could invest in electricity, the return in 2021 would already be more than 100% - thanks to the rising prices currently.

While the average price of electricity on the European Energy Exchange (EEX) in January was around 45 euros per MWh, it is now already at 150 Euro per MWh. This price increase is can be traced back to two decisive developments—the increase in gas prices due to a shortage of resources, and a year with little wind, therefore little wind power.

So Far, We have been able to cushion the fluctuations in electricity prices pretty well...

However, with our promise to pass on electricity prices at purchase price, we unfortunately also have to respond to the current movements on the market and adjust our prices accordingly.

In the graph above, you can see the development of the EEX price since the launch of Ostrom in April up until today. Until the middle of the year, our price was pretty well in line with the market price, but from July onwards you can see the rapid increase in the price, which we must now respond to.

We promise to pass on electricity prices at purchase price, which includes passing on any cost reductions to our customers, and because of this, we give you one flexible monthly tariff that you can adjust or cancel at any time rather than offering price guarantees.

Find what your tariff is made up of in this blog post.

To be able to understand the price increase on the EEX, it is important to understand how these prices are created.

To ensure an economically optimal supply of electricity, there is an order of feeding into the power plants. This means that the power plants that produce electricity with the most favorable marginal costs are allowed to feed electricity into the grid first, according to the merit order. The prices on the EEX are created the same as the classic market economy when supply and demand meet.

But let's get back to current market events—whilst wind was the most important generator of electricity in 2020, there wasn't enough wind in 2021. This means any gaps in the power supply had to then be compensated for by the use of gas turbines. These can be switched on relatively spontaneously because the power plant ramps up and down very quickly and without incurring high start-up costs compared to coal power plants, so they are often used to balance the load. However, as you can see in the graph above, the subsequent marginal costs of running these (additional cost of one additional unit) of gas turbines are relatively high.

Supply shortage, a long winter (resulting in less gas in storage), and the post-COVID ramp-up of the economy have all lead to a higher demand for gas which has driven up the price—including, of course, the price of gas-fired power generation.

Ostrom buys green energy, so why are our prices increasing?

Unfortunately, in Germany the markets for green and conventional energy still haven't been separated, so this also means that regardless of the initial resource, what is sold on the EEX is a so-called "energy mix". Renewable energy providers like us combat this by purchasing certificates to obtain only the green portion of the mix, which functions as a virtual barter trade of the electricity property.

Our PPA with Solarpark Maßbach covers most of our customer's electricity usage. As a result, we procure part of our electricity on a long-term basis, and the price increase thus only affects part of our energy procurement. However, since the electricity demand of household customers fluctuates over the course of the day (see chart below) it is very difficult to accurately predict the different load levels. On top of this, electricity generation from renewable sources can be volatile, so we cover these "peak loads" with electricity purchased on the EEX from certified green sources. Thus, part of our tariff is also dependent on the EEX prices.

Your options as a customer

We'd like to point out that you are entitled to claim the Sonderkündigugnsrecht (Special Right of Termination) when your supplier announces any price changes, which will allow you to terminate your contract within 6 weeks (which is irrelevant if you're already an Ostrom customer, because you can cancel any time).
Learn more about the special right of cancellation in our blogpost here.

Watch out for long-term energy contracts with fixed prices!!

Signing up for a new long-term energy contract with fixed prices might not be the best idea. Because you will get locked in on a high price level and if prices go down again (which they most likely will) you are stuck on an expensive contract. Here's what you can do to prevent being stuck on high price levels.

Use your special right of cancellation and start looking for suppliers with flexible contracts (like Ostrom). Not only can you cancel those contracts on short notice, but you also are not locked in on high prices and if prices go down, at least at Ostrom, savings will be passed on to customers as well. Compared to your basic supplier, we not only offer one flexible tariff, we also only supply green electricity.

Using less electricity is the cheapest option - always

If you're really worried about your electricity bill going up, using less energy has always been the cheapest option. Here at Ostrom, we don't earn anything if you use more energy because we want our customers to use less—after all, the most sustainable electricity is the electricity you don't use. Now that prices are rising, it's a great time to offset those costs by introducing new electricity-saving measures. Turn off those lights when you don't need them, unplug electronics when you aren't using them, and stay tuned for more energy-saving tips from us - linked here!

Photo by Nicholas Cappello on Unsplash