We already put together a guide outlining the factors that influence electricity prices in general.
In the guide below, we look specifically at what might be some of the main causes for increased, or high electricity prices.
To illustrate this, we have put together several case studies and examples of notable countries high renewable energy % of electricity production, or high electricity prices.
Summary – Why It’s Important To Explore Causes Of High Or Increased Electricity Prices In Specific Countries
In general, it’s helpful to have real life case studies and examples of what is causing electricity prices to increase so we can think about addressing these causes to make electricity more affordable and accessible
We are particularly interested in countries with higher than average electricity prices for obvious reasons, but also countries with high renewable energy shares as we want to see if there is a link between renewable energy use and higher prices
It’s important to note that higher prices are not always bad as long as they are still affordable.
Higher prices might lead to other benefits like long term environmental or social advantages, more reliable, secure and higher quality electricity supply, or some other benefit.
Obviously though, if there are benefits, they need to be clearly proven to justify a higher than average electricity price.
Some of the main reasons for increased or higher than average electricity prices listed below are:
Taxes, levies, and State charges (that support development of renewable energy and green energy)
High quality and reliable electricity services (due to higher costs to maintain, upgrade and perform other works on electricity network)
Power grid, procurement and distribution costs
Higher costs for emission rights prices
Poor energy policy such as not encouraging true competition between different energy sources and suppliers
Cost of transmission, poles and wires, and energy transport
Inefficient, old gas plants – which leads to higher gas prices
Supply lags demand
Variability of solar and wind
Renewable portfolio standards (enforcing the purchase of unreliable energy sources, which require backup from other energy sources)
The closure of other energy sources like nuclear power plants
Maxing out existing low cost energy sources
A preference for revenues and profits for electricity suppliers
[We also see that power bills can be made up of various components such as network charges, cost of electricity generation, cost charged by retailers, and taxes for different energy schemes]
For specific countries, factors that impact electricity prices right now or in the recent past might be/might have been:
Countries & Regions With Electricity Prices Mainly Impacted By Renewable Energy
Taxes that cover green electricity schemes might significantly impact electricity prices (some reports say taxes made up about 40% of the prices)
State taxes and levies, and carbon emission rights prices might significantly impact electricity prices (some estimates say up to 50% of the bill)
The US and particularly California
Renewables were heavily linked to electricity price increases.
Renewable Portfolio Standards and other renewable energy mandates by the government are strongly linked to price increases over certain time periods
Electricity price increases are linked to renewable energy contributions, tariffs, levies and taxes
In Europe in general
Some reports indicate electricity prices are made up of about 16% on average of electricity taxes
Countries Whose Electricity Prices Are Mainly Impacted By Factors Other Than Renewables
In Australia as a whole, renewable energy schemes might only make up about a sixth of the electricity bill, or less.
The cost to transport electricity (transmission infrastructure, and poles and wires), poor energy policy, old inefficient and expensive existing ways of generating electricity, and the cost charged by electricity retailers, are all said to be major factors in the electricity prices.
South Australia in particular has old, inefficient gas generators, and there can also be problems with market supply and demand
Electricity price increases were linked to maxing out of existing low cost energy sources, a preference for increase in revenues and profits for electricity suppliers, and re-negotiating industrial elec. contracts
What we see overall is that each country, State, city and geographic region has their own set of major causes of their electricity prices changing.
Also, what factors impact electricity prices over one time period might be different to what impacts electricity prices over another period. Factors impacting electricity prices are time sensitive
This guide can be read in conjunction with our general guide on factors that impact electricity prices
Note: this guide is about retail electricity prices (what households pay). Industrial and commercial (and wholesale) prices are separate.
Countries With The Most Expensive Electricity Prices In The World
Countries of note with expensive electricity prices (above world average prices) are Germany, Denmark, Belgium, Japan, Australia and the UK.
Countries With High Renewable Energy % Share Of Electricity Production
Iceland and Norway are notable countries using 100% and 97% respectively.
A main reason for Denmark’s electricity prices seem to be taxes
These taxes help, in part, support the development of renewable energy and green energy
However, there is now suggestions that since renewable energy makes up a significant share of Denmark’s electricity production, that the electricity tax is significantly decreased or removed
Some sources also say that one of the reasons Denmark’s electricity prices are higher because they have one of the highest quality and reliable electricity services in the world
… approximately 40 percent of a household electricity bill [in Denmark] is tax, and these revenues have enabled Denmark to subsidize the development of renewable energy
However, with more than 50 percent of Denmark’s energy now coming from renewable sources, there is no need for the tax on electricity to remain at such a high level
… the high electricity tax no longer supports the green change, and at the same time it is both expensive to consumers and a burden on the economy,
Therefore, it is only sensible to lower the tax significantly
[it has been] suggested that revenues lost from an electricity tax cut would be offset because economic growth would increase the overall tax take
One of the reasons for the high price of electricity in Denmark is that taxes account for a large proportion of the overall price.
As of January 2019 … In the Danish capital Copenhagen … energy taxes amounted to 41 percent. This was by far the highest energy taxation in major European cities.
Whilst households in Denmark pay some of the highest electricity prices around, the electricity supply is ranked as one of the best in the world with an index score of 6.8 out of a possible 7.
Only Scandinavian neighbor Norway, Singapore and Switzerland had a higher ranking than Denmark in 2018.
– bloomberg.com, and statista.com
… taxes increase the price of electricity
Denmark has mediocre electricity costs (including about DKK 5 billion in costs for cleaner energy) in EU for industries at 9 eurocent/kWh, but general taxes increase the household price to the highest in Europe at 31 eurocent/kWh.
Denmark, which derives nearly half its electricity from wind, and can only do this because it can import or export electricity from neighbours to match demand, has the most expensive electricity in Europe.
Proponents of renewable energy point to the declining price of wind turbines and solar panels … but, Denmark’s wind energy programme doubled its electricity prices since 1995.
… in Denmark, the public subsidies paid by electricity consumers (which represent about AUD10 cents/kWh) to support renewables are expected to increase further if plans are followed to establish a large number of wind turbines in coastal areas
Electricity prices in Denmark and Germany were predominantly impacted by the share of taxes and levies in the total household electricity price.
Denmark had 69 per cent of their household electricity price made up of taxes and levies while in Germany it accounted for 52 per cent, both higher than the average in the EU were taxes accounted for a third of household electricity prices.
The taxes and levies cover the cost of green schemes.
It is likely that the high prices in Denmark and Germany are partly due to the two countries being renewable leaders in Europe.
State charges and taxes, mainly to support the renewable sector, make up a significant % of recent German retail electricity bill break-downs
Other factors and causes of increased electricity prices are higher costs for carbon emission rights prices, along with power grid, and procurement and distribution costs
High levels of renewable energy penetration make electricity expensive around the world …
As Germany deployed high levels of renewables over the last 10 years it saw its electricity prices rise 34 percent.
Today, German electricity costs twice as much as that in neighboring France.
Germany, which is famously installing “green” energy and shutting down its nuclear plants, has the second-highest electricity price in Europe.
In supposedly green Germany, only 39% of the electricity supply is clean, and 61% is dirty.
It hasn’t met any of its emission reduction targets and won’t do so any time soon.
In neighbouring France, which gets most of its electricity from nuclear, 86% is clean and 14% is dirty.
German electricity prices rose by 51% during its energy transition [to renewables] between 2006 and 2018, so French electricity now costs only 60% of what it costs in Germany.
Electricity prices charged to German households by local utilities have reached record highs, driven by high wholesale and carbon prices that are passed down to consumers, [and] gas prices were also up.
The main reason was the higher costs for carbon emission rights prices
Other big contributors to final power bills, renewable support fees and grid transport costs, were relatively stable.
State charges and taxes, mainly to support the renewable sector, have reached 52.8 percent of German customers’ final bills, helping to make German retail energy prices the highest in Europe alongside Denmark.
Power grid costs make up 24.4 percent, and procurement and distribution 22.8 percent, of final power bills.
The Benchmark European carbon price hit a 10-year high on Wednesday, marking a near 130 percent rise this year
The European Union’s Emissions Trading System (ETS) charges power plants and factories for every tonne of carbon dioxide (CO2) they emit.
The cap-and-trade scheme is the EU’s key tool to meet its goal of reducing greenhouse gas emissions by 40 percent by 2030 compared with 1990 levels
High carbon costs make fossil fuel power generation more expensive which mean they also affect wholesale electricity prices.
In Germany, solar photovoltaic (PV), biomass plants and wind have received the largest share of the feed-in tariffs payable and reflected in German power prices in 2015
Electricity prices in Denmark and Germany were predominantly impacted by the share of taxes and levies in the total household electricity price … in Germany it accounted for 52 per cent, both higher than the average in the EU were taxes accounted for a third of household electricity prices.
The taxes and levies cover the cost of green schemes.
In Germany, more than half of the power price for households and small businesses consist of components determined by the state
In January 2016 on average, the renewable energy surcharge represented 22.2 per cent of household prices. The renewable energy surcharge pays the state-guaranteed price for renewable energy to producers and rose to 6.354 US cents/kWh in 2016. It is expected to rise to 6.88 US cents/kWh by next year. The only share that was larger was the grid charge which represented 24.6 per cent of the bill on average. This is a charge for the use of the power grids and is set by the federal grid regulator at 7.07 US cents/kWh.
Some other resources on German electricity prices:
Australia (& South Australia)
Australia is not like Germany or Denmark – various reports say taxes can’t be blamed for electricity prices in Australia
Some sources say South Australia has a poor energy policy (and this can also be the case nationally, or in other States) which has contributed to high natural gas prices.
Solar and wind have actually competed with existing natural gas and reduced electricity prices in South Australia
In other States in Australia, transmission, and poles and wires (and the investment in them) make up about two fifths of total cost of electricity bills.
Cost of electricity generation, and bills and costs charged by retailers are other factors that are included in retail electricity bills.
Green energy schemes make up only about one sixth of the costs/price of retail electricity
So, in Australia, there are multiple factors impacting electricity prices, not just one.
And, the cause of electricity price increase can change from year to year, or decade to decade
[one significant study found renewables reduced prices more than the subsidies paid for them in South Australia]
… households in the state of South Australia have on average the highest electricity prices in the world
… wind and solar generation in South Australia actually brought wholesale prices down in a 5 year period [taking into account all the factors that led to the past prices]
… renewables reduced wholesale prices by an average of about 30 per cent, or about $37 per megawatt hour, mostly due to wind generation .. whilst subsidies paid for them were $11 per megawatt hour of electricity produced
Renewable generators have been able to sell electricity on the wholesale market very cheaply, because the ongoing cost of producing electricity from wind and solar is effectively zero. These cheap offers from renewable generators on the wholesale market displace more expensive offers from gas generators, effectively reducing prices for the entire market
But the study found the reduction in wholesale prices thanks to renewables has not been enough to offset the high price of gas. The closure of [several] coal-fired power stations has left South Australia reliant on expensive generation from gas-fired power stations
… [gas pushes prices up by about 40%]
[As long as you have so much gas generation with such inefficient and old gas plants … your prices will be high]
… [there would have been higher prices in South Australia without renewables, fundamentally because of the high price of gas]
South Australia was closely followed by Denmark and Germany, countries which pay by far the highest taxes
The graph shows high prices were also being felt by households in other Australian states — next in line were New South Wales, Queensland and Victoria.
… South Australia’s current energy mix meant expensive gas generation was setting the price for the whole market … “What tends to happen is that gas is setting the price so high, so often, that it overwhelms everything else”
… an energy policy vacuum at a federal level is part of the problem … “Because we’ve not had good policy … nationally, we’ve not seen other kinds of generation come in to compete with gas-fired power stations, which set the price so often and keep the price so high”
… [so it starts from good energy policy at the national level that encourages competition from cheaper energy suppliers]
[expensive inefficient old plants can set the entire market]
Power bills [in Australia] are made up of several parts. All parts of those bills have gone up, but some by more than others.
The parts that make up those bills are …
1. Network Charges (Transmission Poles & Wires, & Investment In Them) – has been responsible for about two-fifths of the increase in bills over the decade. [Investing in infrastructure, demand flatlining due to energy efficiency and solar, and a GFC – leads to higher elec prices. These investment costs for mainly state-owned transmission and distribution companies are passed onto consumers]
2. Cost Of Electricity Generation/Wholesale Cost Of Electricity – actually the biggest factor in 2017. Closure of coal plants, and ageing failing coal plants play a part in this. When plants shut down or suppliers withhold their power from the market until demand increases – there can be gaps in supply and demand and this can lead to price surges (because supply is lacking). There can be an increase in the price of natural gas, leading to premium prices when States are reliant on it.
3. Costs Charged By Retailers – retail costs have also risen. This is the part of a power bill that several investigations have found is the hardest to monitor, and the least transparent to consumers … and, it is responsible for nearly a quarter of the increase over the decade. What does this include – profits, marketing? Also, if you have a small number of retailers owning a large majority of customers – it makes it hard for others to compete.
4. Renewable Energy Schemes – Last, and least, among the factors pushing up prices is “green schemes”. These programs – together, are responsible for about one-sixth of the increase in bills. Includes renewable energy targets, energy programs that pay customers for power sent into the grid, and energy efficiency programs. the renewable energy target will help soften price rises by increasing competition in the NEM in reality
[compared to California and Texas in the US, the main reasons for the electricity prices in Australia might be …]
The main thing is that prices in Australia are high because supply has been lagging demand
[but also] gas prices
In Australia, the cost of renewables currently represents a tiny band on the percentage of consumers energy bills.
Between 2004-2014 energy price increases were largely caused by investment in network infrastructure rather than any renewable charges.
Green schemes such as feed-in tariffs (FiTs) having a small impact on consumers electricity bill.
One example is Queensland, where renewable schemes currently account for less than 10 per cent of the total electricity bill.
Over the 2004-2014 period, Australian retail electricity prices for households nearly doubled. Increases were largely caused by the need to invest in network infrastructure due to the need to replace aging assets.
The cost of renewables currently represents a small share on the percentage of the energy bill. In most states network costs and generation costs form the largest components followed by the retail costs.
Queensland renewable schemes account for less than 10 per cent of the total bill with network charges accounting for about 50 per cent of the typical residential customer’s bill.
Much like Queensland, South Australian and Victorian renewable schemes account for less than 10 per of the total bill.
In Tasmania, a breakdown of the costs that make up Aurora Energy’s regulated tariff shows renewable energy certificates accounting for 5.6 per cent of the household bill
High electricity prices
… there are many factors that affect retail electricity prices. Increasing levels of renewable energy generation is just one.
Other factors include network costs, gas prices, changes in supply and demand dynamics and market competition issues.
Therefore … [the] assertion that South Australia’s high retail electricity prices are “the consequence” of former Premier Jay Weatherill’s renewable energy policies is incorrect.
[retail customers of electricity in most States across Australia pay 44% more for electricity in 2018 compared to a decade ago]
The biggest culprit [of rising power bills] has been the network component – the cost of transporting the electricity.
Next comes the retail component – the cost of billing and servicing the customer.
Then there is the wholesale component – the cost of generating the electricity.
And finally, the government policy component – the cost of environmental schemes that we pay for through our electricity bills.
Each component has a different tale, told differently in every state. But ultimately, this is a story about a decade of policy failure.
[so, the reason for electricity price increases can be different from year to year, or from decade to decade]
You can see the energy sources powering each State at: https://www.energymatters.com.au/energy-efficiency/australian-electricity-statistics/
… Queensland and NSW are mostly coal
And, you can see electricity prices in the graph for several States at https://www.abc.net.au/news/2018-12-07/study-shows-impact-wind-solar-gas-power-on-electricity-prices/10590876
Queensland, and NSW trail SA, Denmark and Germany
Ideas on making electricity prices in some states in Australia more competitive:
Gas prices could be cut by having more gas could be injected into the domestic market, whether through limiting the amount that can be exported or carving out part of what is produced for local use only.
Also, the States could open up gas companies for more exploration and development to make it more available (increase supply). This would take years to flow through even if they were to relent.
Also, there could be energy and climate policy to encourage investment in new power plants.
For clean energy – Increased generation capacity will help cut the soaring wholesale price, offsetting the cost of the target itself
This will go only so far though – eventually more old coal-fired plants will shut. … policy certainty beyond 2020 is needed to spark further investment in replacement plants and energy storage to provide reliability, limit price rises and help Australia meet its climate targets.
There are other factors at play that make predicting the future difficult. To take one example: a significant chunk of what consumers are charged is to ensure the grid can deliver at peak times. The exponential rise of solar panels – now on more than 1.7 million homes – combined with the expected growth in home battery packs is expected to reduce this. So is the introduction of demand response programs, which offer a cash incentive to businesses and consumers who make themselves available to briefly turn off the power at times of stress on the grid (usually in periods of extended extreme heat).
Both home generation and demand response should limit the need to invest in expensive new plants and networks. They make projections of future electricity demand – which has already levelled off over the past decade – difficult. The same applies to costs.
United States (& California)
Electricity prices vary State to State in the US
Renewable energy mandates across the US can make electricity more expensive
Specifically solar and wind energy (as opposed to other renewable energy sources like hydroelectricity) might be the main reasons for California’s electricity price increase.
Their variability means that power is still required from other power sources
Also, the closure of nuclear power in California is also suggested as a factor of increasing electricity prices
In California … California’s high penetration of intermittent renewables such as solar and wind are likely a key factor in higher elec. prices
The increases came despite 2017 having had the highest output of hydroelectricity — the state’s cheapest source of electricity — since 2011
California’s RPS (renewables portfolio standard) increases electricity costs in part by requiring the purchase of renewables even when they cannot be relied on to power the grid, requiring undiminished capacity from the combination of natural gas, hydro, and nuclear power
Another reason for California’s high electricity prices is the closure of San Onofre Nuclear Generating Station (SONGS). “In the twelve months following the closure, natural gas generation costs increased by $350 million”
During California’s solar build-out between 2011 and 2017, electricity prices rose by 24%.
In 2018, electricity prices in renewable-heavy California were 67% higher than the average in the rest of the United States.
Renewable energy mandates increase electricity prices across US states
High levels of renewable energy penetration make electricity expensive around the world, not just in California.
[A major study in America found that Renewable Portfolio Standards made retail electricity prices more expensive from 1990 to 2015]
[The result of the study was] consumers in the 29 states had paid $125.2 billion more for electricity than they would have in the absence of the policy
The reasons are mostly physical reasons …
Solar and wind require that natural gas plants, hydro-electric dams, batteries or some other form of reliable power be ready at a moment’s notice to start churning out electricity when the wind stops blowing and the sun stops shining
And unreliability requires solar- and/or wind-heavy places like Germany, California, and Denmark to pay neighboring nations or states to take their solar and wind energy when they are producing too much of it
[Three key costs contributing to additional costs to the energy system are] unreliability of renewables, the large amounts of land they require, and the displacement of cheaper “baseload” energy sources like nuclear plants
Potential reasons for Vermont’s electricity prices:
- Vermont isn’t taking advantage of cheap natural gas right now – this could potentially make prices cheaper
- Low electricity price States in the US … get most of their electricity from hydropower or coal
Solar and wind are blamed for increasing electricity prices
Subsidisation of these energy sources and penalising cheap energy sources like nuclear are a factor
Additional cheap energy sources would increase competition
[Countries with highest variable solar and wind % tend to have highest electricity prices]
What has caused the current slump — and not only in Belgium — is that while we were struggling to open up the electricity market to competition, green ideology came along forcing a rupture of the system by insisting on subsidisation of the most expensive form of electricity while penalising nuclear power, which is cheaper especially when it has already been depreciated.
Belgium is a textbook case of the destruction of a healthy energy sector, producing cheap energy, by crazy ideological and political sidetracks.
In fact, according to the CREG, the total electricity bill of a private individual increased on average 69.51% between 2007 and 2016.
This can mainly be explained by the increase in renewable energy and cogeneration contributions, transmission and distribution tariffs as well as public levies and taxes.
Factors for increasing electricity prices were maxing out of existing low cost energy sources, a preference for increase in revenues and profits for electricity suppliers, and re-negotiating industrial elec. contracts
Wholesale electricity price in Iceland were rising in 2017 because of some of the following reasons:
Demand for electricity was growing
Low cost [electricity] options in the geothermal and hydropower sectors had been maxed out (fully harnessed)
Rising tariffs in special contracts with heavy industries [who consume about 80% of all electricity generated in Iceland] in Iceland are of note too (contracts are being re-negotiated, or more expensive contracts are being offered after current contracts end) … new contracts are far more expensive than old ones because power suppliers want to raise revenues from electricity sales, or their cost of business has increased, or there are other factors at play
Rising tariffs reflect the necessity to increase return on capital invested in Icelandic power production, which so far has in general been very low
Also, rising levelized cost of energy (LCOE) for new power plants in Iceland will likely push the electricity tariffs up
Other notes on Iceland are – the price of electricity is higher with transmission costs included.
Europe In General
As of January 2019, energy taxes made up a share of approximately 16 percent of the average EU residential end-user electricity price structure.
How To Determine What Is Causing Electricity Prices To Increase & Decrease
Assess the following factors:
It also includes links to resources that list average electricity prices for many other countries.
Finding out current and past prices can give you an idea of how prices in a particular place compare to global or national averages (and figure out whether it appears affordable or not).
Note, there is a difference between wholesale, retail, and industrial and commercial electricity prices. Most people are interested in retail – what households pay.
– Understand the general factors that impact electricity prices
– Understand the specific set of electricity price factors and causes applicable to a city, State or country
Further to the general factors that can impact electricity prices, you have to understand the unique situation and variables of each country and State.
They all impact prices differently.
For example, in America or Australia, you have to know the energy sector and electricity sector makeup up of a specific State – like California, or South Australia for example. Each has it’s own variables.
What we can see is that in some European countries, higher electricity prices might be due to high taxes and support schemes for renewable and green energy.
It may also be because of a flaw in the way that that country’s electricity market is set up from government policy or regulation.
In a place like South Australia, electricity prices might be caused by a range of factors like poor government policy, high investment in network infrastructure, inefficient and old existing fossil fuel power plants, lack of supply of cheap energy sources, and other factors (so a mix of factors overall).
You also have to consider that some countries have natural advantages and limitations to consider.
For example, Iceland is said to have maxed out their cheap sources of renewable energy already. Australia a spread out country with a lot of land – which may mean significant investment in transmission lines in the future.
In each country, State, city or region, run through the general factors and try to apply them to a specific location e.g. what is California’s supply vs demand in total and during different times of the year and day, what is California’s energy mix, how do California’s government’s energy policies impact electricity supply and demand, and so on.
– Consider the time span over which prices have changed, and attempt to link price changes to causes
Electricity prices can change daily, weekly, monthly, annually, and over a period of years.
Sometimes you can link certain factors with a sudden or continued price increase or decrease over a particular period of time (sometimes, sometimes not).
For example, several countries have seen consistent price increases year on year since increasing renewable energy share, and introducing renewable energy support schemes and taxes.
Some countries also see prices increase as cheaper energy sources are shut down or phased out in favor of newer more expensive ones.
These are just two of many examples.
– Try to remove bias – understand that whilst one or two major factors may cause a significant change in electricity prices, there’s ultimately a range of factors and pressures up and down the electricity supply and production change that can impact price
Trying to find causes for electricity prices can be a bit like ‘he said, she said’ – it’s easy to go around in circles with finger pointing from different sides.
So, try to examine all factors and be open minded, and stick to facts and figures where possible.
Finder.com.au puts it a good way:
Electricity prices have become a political hot potato, and the blame game has been running unchecked for more than a year.
Electricity retailers find fault with governments, and renewable energy advocates point the finger at the nasty old fossil-fuel generators. The right-wing commentariat blames renewables, while the federal government blames everyone but itself.
The truth is there is no silver bullet. No single factor or decision is responsible for the electricity prices we endure today.
Rather, it is the confluence of many different policies and pressures at every step of the electricity supply chain.