Due to various points, the forecasts regarding the development of electricity prices are positive:
1. merit order principle
a. Although renewable energies reduce the price overall, they can currently only cover around 50% of the total electricity demand in Germany on an annual average.
b.The difference is made up by fossil-fuel power plants, which produce electricity at the highest cost.
c. In the energy industry, the merit order refers to the order in which power plants that produce electricity are deployed in an electricity trading center. Accordingly, the power plants that can produce most cost-effectively are allowed to feed their electricity into the grid first. In order to meet the demand for electricity, additional power plants are then gradually added to the feed-in until the current demand is met.
d. At the same time, the most expensive and last power plant that is just needed to meet the demand determines the exchange electricity price for all market participants.
2. influence of gas price on electricity price
a. Renewable energy sources are extremely volatile, so that depending on the weather (little sun or little wind) a supplement must be called in to be able to cover the consumption. As long as electricity storage facilities are not yet sufficiently available, this supplement is usually provided by gas-fired power plants, as these are flexible and can be controlled quickly.
b. The fact that the last power plant in the merit order list is usually a gas-fired power plant and thus determines the price for everyone, the high gas prices on the electricity market make themselves felt.
3. price increases for CO2 certificates
a. Fossil power plants have to buy CO2 certificates for their emission-intensive power generation.
b.These continue to rise in price due to legislation by the German government. The current CO2 price is initially 25€/t. By 2025, it will gradually rise to up to 55€. For 2026, a price corridor of min. 55 to max. 65€ is to apply. It can be assumed that prices will continue to rise.
c. The fossil power plants pass on the price increase to their offer price on the electricity exchange. I.e. due to the rising CO2 prices, the costs of the fossil power plants additionally increase further. This in turn has an influence on all other power plants via the merit order effect and thus on the electricity exchange price.
4. demand on the world market
a. In Germany, the share of fossil fuels in the power mix is sinking.
b. In emerging and developing countries, however, the situation is different: They are growing and have an unbroken high, even increasing demand for all fossil raw materials, which are traded on the world market. This leads to higher prices for fossils.
c. This is where the merit order effect comes into play again, where the most expensive power plant - and that is always a fossil power plant - determines the exchange electricity price for all other power plants on the market.
More information here.
Sources:
https://www.tengelmann-energie.com/merit-order/
https://www.bundesregierung.de/breg-de