Energy

The Ostrom Tariff Explained

By

Rahel Kunkel

9.11.2021

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Mins read

With all the different tariff options that electricity supplier in Germany offer, finding "Mr. Right" is never easy.

Not only across different providers, even each electricity provider often offers a range of different tariffs, with different terms and contract conditions. These non-transparent cost structures are just the beginning—12, 24 and 36-month contract terms, new customer bonuses, switching bonuses, or even packages that include a cell phone or a washing machine?

Suppliers use their advantage and the fact that the energy industry is not exactly easy to understand. All kinds of tricks to win new customers and retain them for as long as possible are used to exploit and lock in customers. For example: Long contract conditions and price guarantees are offered with the assumption that customers will forget to cancel their contract in time, and can therefore then be migrated to a more expensive contract.

On top of that, uncertainty about the exact composition of the electricity tariff contribute to even more ambiguity. But what exactly is energy price, base price, grid charges, service costs, and EEG levy?

To understand energy tariff cost structures a bit better, we'll explain briefly how the tariff at Ostrom is composed—and prove that customer satisfaction, transparency, and economic responsibility don't have to be separate entities when in comes to energy contracts.

1. Electricity Generation Costs (Purchase Price)

Electricity generation costs are basically all the costs incurred in converting energy from feedstock to electricity. For example, if solar energy is being generated, the electricity generation costs include the construction, maintenance, and operating costs of the PV systems and the conversion of sunlight into electricity. In the case of conventional power plants, the purchase of raw materials, the cost of nuclear waste storage, or the CO2 costs for coal-fired power generation, are also taken into account.

We compared the production and environmental costs of the various energy sources in the graph below. If you would like to learn more about this, you are welcome to take a closer look here.


2. Grid fees

Grid fees are levied by the regional network operators and serve as fees for the construction, operation, and maintenance of the networks.

The electricity that comes out of our sockets must first be taken from medium to low voltage in transformer stations, then transported through the grid. In addition to this, network operators are also responsible for maintaining the energy balance in the network. This means that there can only be as much energy in the grid as is actually needed. The expansion of the grid, which is becoming increasingly relevant especially in the course of the energy transition, is also one of the tasks of the grid operators. Household customers do not pay the grid fees directly, but via their electricity provider, who then passes them on to the grid operators.

The level of the grid fees can vary depending on the region. This is mostly due to the costs of the transmission system operators (from high to medium voltage level) which can differ regionally for grid expansion and grid stability, and are thus passed on to the distribution system operators.

3. EEG-Levy

The EEG levy under the Erneuerbaren Energien Gesetz (Renewable Energy Sources Act) was created to compensate for the difference between the electricity production costs of renewable energy generation plants and the electricity prices of the stock exchange. Transmission system operators are obliged to prioritize purchasing renewable energy at a fixed remuneration rate and feeding it into the grid, so the market premium financed by the EEG levy can be used to market electricity from renewable energy sources competitively on the electricity exchange, or via direct contracts.

4. Other taxes and government levies

- Electricity Tax

As part of the eco-tax, the Electricity Tax is an indirect tax incurred by the electricity supplier when electricity is taken by the end consumer and then passed on to them.

- Value Added Tax

19% value-added tax (VAT) is added to all electricity price components.

- CHP-Levy

The CHP-Levy is used to promote electricity generation from combined heat and power plants (in addition to electricity generation, heat is also generated and can be used as local or district heating).

- §19 NEV- Levy

Industrial companies can have special regulations for grid fees. In order to finance these reduced grid fees, the NEV-Levy is added.

- Offshore-Liability-Levy

The Offshore Liability Levy is levied to cover claims or damages that could arise from delays or failures of the grid connection to offshore wind farms.

- Concession Levy

Charged by municipalities in return for the use of public streets and roads (right of way) to build and maintain power lines and grids.5. Ostrom Basic feeHere at Ostrom we take care of customer service, bills, market communication with the grid and legacy suppliers, as well as procurement and supply of electricity. Since we pass on the electricity price to you at purchase price, we charge a small basic fee for the above services. Thanks to our efficient processes and structures, we're able to keep this fee very small and continue to pass on transparent pricing to our customers.

5. Ostrom Basic fee

Here at Ostrom we take care of customer service, bills, market communication with the grid and legacy suppliers, as well as procurement and supply of electricity. Since we pass on the electricity price to you at purchase price, we charge a small basic fee for the above services. Thanks to our efficient processes and structures, we're able to keep this fee very small and continue to pass on transparent pricing to our customers.


Where our electricity comes from, and why we offer a flexible tariff

At Ostrom we buy electricity through our partnerships with green power producers wherever possible, either directly or in the wholesale market from certified green sources. Nevertheless, we cannot cover the entire electricity supply through our PPA, so we also purchase electricity on the stock exchange from certified green sources to cover the difference. Naturally, these sources are also dependent on current fluctuations in electricity prices. As your energy supplier we strive to be economically responsible, so we check costs regularly and adjust prices where necessary. However, seeing as we pass on our electricity prices to our customers at purchase price and our tariff structure remains transparent, we're unable to offer binding price guarantees.

As you can see, when you compare the charts above, the electricity production costs are only a part of the electricity tariff. The tariff also depends on different charges, levies, grid fees, and margins of the suppliers, as well as the EEG levy and, last but not least, the wholesale market price of the electricity itself.

Your electricity tariff is therefore made up of a fixed part and a variable part.

The fixed part is called the base price, the variable part the working price. The basic price remains unchanged, the working price depends on your consumption.

The working price is therefore the current price that you pay per kWh. It includes the current electricity generation costs, taxes, levies and surcharges as well as variable costs of the grid operator.

The base price is made up of the fixed costs of the grid operators and the Ostrom fee, and remains unchanged.

Photo by Matthew Henry on Unsplash