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EXPLAINED: How to save money on your German electricity bill

Electricity prices in Germany are expected to rise sharply on the back of surging energy costs. If you’re smart - and patient - you can still save money on your bills, though.

Published: 21 February 2022 16:57 CET

EXPLAINED: How to save money on your German electricity bill

You can save money on your electricity bill by switching off plugs. Photo: dpa-tmn | Andrea Warnecke

Energy costs surged in the second half of last year due to a perfect storm of events including the Ukraine crisis, rebounding demand for gas in east Asia, and rising taxes on fossil fuels.

Utility providers have already started to pass these procurement costs onto the consumer. Comparison website Verivox concluded in autumn that the price of electricity increased by an average of 6.6 percent last year. That equated to an additional €63 for an average household with a consumption of 5,000 kilowatt hours.

Add to that an additional €330 in heating costs for a household of a similar size and it is clear that most people are going to notice a painful difference in their fixed costs this year.

In the worst case scenario, you might be one of the 800,000 customers of the company Stromio, which stopped supplying customers in early December, leaving them with little choice but to move onto a more expensive Grundversorger (default supplier) contract.

There are ways to try and reduce costs. But, be warned! Some of the tricks long recommended by consumer advocacy groups no longer apply.

Time to change your supplier?

Consumer advocacy groups used to have a rule of thumb: look into changing your electricity supplier once a year and you could save a three figure sum on your bill.

The reason for this was that many suppliers offer sweeteners for the first 12 months of your contract before bumping up the charges in subsequent years. They basically rely on customers not getting around to changing to a new supplier.

But with hundreds of providers out there to choose from, there was really no reason not to switch your supplier on a regular basis.

Things are different in the current climate. Due to the explosion in prices on spot markets, many utility companies have had to put their price up, although this is by no means a general rule. Companies that tied their purchases to longer contracts have been less affected by the price fluctuations.

“At the moment, many existing customer contracts are cheaper than what you can find on the market,” Christina Wallraf, an energy market expert from the NRW consumer advice centre, told the Redaktionsnetzwerk Deutschland last week.

“Prices are currently around 38 cents per kilowatt hour for new customer tariffs – that’s relatively high,” she added.

So if you are thinking about switching your provider, it is worth looking at your own contract first. If you currently pay less than 38 cents per kilowatt hour you’re unlikely to find a better deal elsewhere.

On the other hand, if your provider has hiked your tariff up over 38 cents per kilowatt hour, you should find better value elsewhere.

Price comparison websites such as Verivox and Check24 are appropriate destinations for doing some research. Analysts caution though that some of the deals that you find on these websites may no longer be current. You should therefore call up the company to make sure that the deal is still on offer.

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It could even be worth checking out the price of your local Grundversorger at the moment. While their prices are normally higher than those offered by other companies, some of them are currently cheaper than the competition.

Customer advocacy groups warn though that some of the Grundversoger are taking on new customers on contracts that are often more than twice as expensive as existing ones.

The website Finanztip crunched the numbers and found that every second default supplier was offering adverse terms to new customers. In Cologne for instance, where Rheinenergie is the default supplier, the price almost doubled on January 1st from 28.68 cents per kilowatt hour to 54.09 cents.

Still, other default providers offer much better value for money. The 33 cents per kilowatt hour charged by Vattenfall in Berlin is now below the average price.

Analysts also warn against committing oneself to a long-term contract. That’s because the new government intends to abolish the renewable energy levy known as the EEG. This will happen at the latest at the beginning of 2023 and could bring down the cost of a kilowatt hour of electricity by as much as five cents.

Save money by reducing electricity usage

Given that it is an inauspicious time to change providers, many people will need to look for alternatives when saving on utility bills. The obvious alternative is to use less electricity, or be smarter about how you use it.

You can cut down electricity usage in Germany in all the usual ways. By upgrading to an energy efficient washing machine and fridge, you can save on your bills in the long term. By making sure your windows and doors aren’t drafty and your thermostat isn’t set too high, you will save on heating bills. And by turning off electric equipment instead of allowing it to remain on standby, you will also save money.

Consumer groups estimate that you can save over €100 by cutting down consumption.

Another trick that some households can take advantage of is using washing machines and dishwashers at night. If you have a Nachtstromtarif (night time electricity tariff), you pay less for electricity between 22:00 and 6:00.

Check your contract to see whether this applies to you. While Nachtstromtarife aren’t as common as they once were due to changes in how we produce and use electricity, those who do have them can make significant savings.

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How the cost of living crisis is affecting everyday life in Germany

With life opening up after lockdowns, supply chain issues and growing demand for products, inflation has been hitting record levels in many economies, including Germany.

Most of us have likely received letters telling us that our energy bills are going up. But the cost of housing and leisure is also increasing in Germany.

What’s going on?

Whether it’s your groceries at the supermarket or gas for the car, many things have become more expensive in Germany in recent months.

This can be seen in the fact that inflation has reached record levels. In January 2022, inflation in Germany stood at 4.9 per cent. In December and November it was even higher.

Inflation is a complex phenomenon where many factors play a role. Decisions made by central banks on interest rate cuts or increases also play a role in the development of prices.

At the moment there is a catch-up effect in the price increases for almost all goods: after the global economy cut back its production at the peak of the pandemic in 2020 and 2021, the economy has been picking up again. The higher demand for goods and raw materials is temporarily leading to rising prices, which are also being felt by consumers.

A customer in a supermarket hands over a €5 note.

A customer in a supermarket hands over a €5 note. Prices are going up for many products in Germany. Photo: picture alliance/dpa | Moritz Frankenberg

But what exactly is getting more expensive and why? A closer look shows that the price development is currently making life expensive in three areas in particular: housing, transport and leisure, reported Business Insider.

Other groups of goods, such as health products, have not seen the same price hike (0.9 percent) or have even become cheaper, such as clothing and telecommunications (-0.1 percent each).

But what does that mean exactly for day-to-day life? The Federal Statistical Office categorises more than 300,000 prices of individual goods and services – from milk prices to the cost of a nursing home – into 12 groups of goods, including housing and additional costs, food or education. A “representative basket of goods” is then calculated from these. The inflation rate is calculated by comparing the price of this month’s basket of goods with that of a year ago.

The basket of goods is supposed to correspond to the average expenditure in this country. To do this, different goods are weighted differently. For example, housing and utilities account for almost a third of the total basket of goods, while “education” has a share of only 0.9 per cent.

The three groups of goods with the largest share of the basket of goods are firstly housing and utilities, secondly transport and thirdly leisure, entertainment and culture.

Together they account for about 55 percent of the basket of goods. It is precisely for these goods that prices have now risen the most in January: while overall consumer prices rose by 4.9 per cent, it was 5.2 per cent for housing, 10.6 per cent for transport and 5.4 per cent for leisure.

However, three additional problems are playing a role in the largest price hikes in the three ‘goods groups’ of housing, transport and leisure: the housing crisis, the energy crisis and the semiconductor crisis. Here’s a look at these sectors in more detail, and how they’re affecting daily life in Germany.

Housing shortage

The housing shortage in Germany has been a much-discussed topic for years. More and more people in Germany are spending an ever larger share of their income on rents.

But there are big differences between the big cities, where prices continue to rise rapidly, and some rural regions, where there have been hardly any price increases.

This highlights a central problem in the calculation of inflation: there is no one inflation rate that applies equally to everyone, but the individual inflation rate always depends on one’s own basket of goods.

For housing, this means that the inflation rate for city dwellers is higher than that of people who live in the country simply because of the high rents.

The price increase in housing – both renting and buying – has been going on for years and is not likely to stop in the future. Although there are signs that the rise in rents is slowing down, even in big cities. Nevertheless, rents will most likely continue to rise, especially in metropolitan areas – albeit with large regional variations.

Apartments in Cologne.

Apartments in Cologne. Photo: picture alliance/dpa | Federico Gambarini

Even if the federal government keeps its political promise to provide affordable housing, it will probably be several years before newly built flats could noticeably take pressure off the rental market. At the same time, the government’s construction plans and higher environmental standards in building will make construction and thus housing costs more expensive, at least in the short term.

Over the next few years, the cost of housing will probably continue to rise – and with it inflation. The fact that ancillary and operating costs are also likely to rise will also contribute to the further increase. When calculating the costs of housing, these are also included in addition to the basic rent. And it is precisely here that there have been the greatest price increases. Light heating oil is the single good with the strongest price increase: 57.3 percent compared to the same month last year. Therefore, the increase in housing costs is also directly related to the energy crisis.

How is the energy crisis affecting life in Germany?

Energy is more expensive today than it has been for a long time.

This isn’t just a case of pay higher ‘warm rents’ and therefore higher costs, but actually impacts almost all goods on the market. The refrigeration of food becomes more expensive, as does the services of a handyman or woman, because their car journey gets pricier.

However, the price-driving effect is greatest on the goods group “mobility”. The increase here was more than twice as strong as overall inflation. The goods grouped here include cars as well as air travel or train tickets. After heating oil, rental cars are the single goods with the highest price increase: 53.4 percent compared to the same month last year.

The Autobahn near Erfurt.

The Autobahn near Erfurt. Hiring a car has become much more expensive. Photo: picture alliance/dpa/dpa-Zentralbild | Martin Schutt

But why are energy costs rising so sharply in the first place? It’s mainly due to the worldwide squeeze on energy supplies, which has pushed the price of gas prices up to unprecedented levels worldwide.

Furthermore, Germany’s tax on C02 was introduced in January 2021 – and this also makes energy more expensive for consumers. Germany is also particularly dependent on natural gas. Meanwhile, Russia is currently supplying less natural gas than in previous years. Liquid natural gas, which comes from the USA as a substitute, has to be delivered by ship, which is relatively expensive.

As soon as temperatures rise and if a solution to the Ukraine crisis is found, the price of gas could drop again in the short term, which should ease the energy crisis.

But in the medium term, energy prices are likely to rise further, because the transition to cleaner energy will involve additional costs – especially due to Germany’s parallel phase-out of nuclear energy. Energy is therefore likely to remain a key inflation driver in the coming years.

What about the entertainment sector?

“Leisure and entertainment” is the third-largest goods group – and the one with the third-largest increase in prices. This includes, for example, visits to cafés or cinemas. These companies had revenue losses during Covid shutdowns or now have to operate at a lower capacity or with complicated hygiene and safety concepts. The price of their supplies has also become more expensive. Many have therefore had to hike up their prices to compensate for the increased costs.

Meanwhile, electronic equipment, such as consoles and televisions, hi-fi systems, cameras and computer, have become much pricier mainly because there is a global shortage of semiconductors which are needed for computing chips.

The combination of the surging demand for consumer products that contain these chips, as well as pandemic-related disruptions in production has led to shortages and increasing prices for semiconductors.

Experts expect the shortage to continue until at least mid-2022. After that, however, the market should slowly relax, which is why the price increase for entertainment products should ease slightly in the medium term.

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