• Under the merit order, renewable energy generation affects electricity prices.
• With the right tools, end customers can leverage fluctuating electricity prices – and do good for the environment.
• Smart energy management systems and time-of-use tariffs are ideal tools for minimizing electricity costs and improving one's own environmental footprint.

Munich, 21 September 2023 – By 2045, Germany wants to become climate-neutral. Therefore, renewable energies are being constantly expanded. In 2022, renewables accounted for 46.2 percent of gross electricity consumption and the German government expects this share to grow to at least 80 percent by 2030. Beyond higher expansion rates, which must increase by at least threefold, citizens also play a key role in achieving climate neutrality. An expert from the smart energy company, gridX, explains how electricity consumers can immediately align their electricity consumption as closely as possible with renewable energy generation.

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"First of all, it is important to understand how electricity is produced, how it is priced and how the two are related," says Christian Augustin, Team Lead Solution Product Owner at Europe's leading smart energy company, gridX. Throughout Europe, the price of electricity is based on a uniform principle: the merit order. According to this model, the cheapest electricity sources are always used to meet current demand. The electricity production costs of the most expensive generation source used then determine the electricity price. In addition to the wholesale cost of electricity, consumers are also charged transmission and distribution costs, as well as government taxes and levies. For a long time, nuclear power plants were the cheapest source of electricity and thus first in the merit order, followed by lignite and coal-fired power plants and then natural gas and oil – the two most expensive methods. However, the increase in renewable generation sources in Germany is turning this on its head: the Renewable Energy Sources Act (EEG) requires that electricity from renewables be included in the merit order. Since renewable generation is often significantly cheaper, this results in falling prices. "In the future, there will be downward price pressure, i.e. falling electricity prices, intensified by the steadily growing share of renewables in electricity generation," explains Augustin.

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"However, if households wants to save money on electricity costs today, they can already take a look at fluctuating prices that arise depending on the dominant generation source and in response to demand versus supply," the gridX expert elaborates. With time-of-use tariffs, consumers are exposed to price fluctuations. "Because renewable electricity is very cheap to produce – it has almost no marginal costs, for example – consumer prices are often very low during periods of high renewable production," Augustin says. On July 2, 2023, for example, high renewables production combined with weak Sunday demand led to negative electricity prices on wholesale markets – a megawatt hour cost negative 0.5 euros. This meant that those feeding electricity into the grid at this time had to pay money, while those drawing power were effectively paid to consume electricity, depending on their electricity contract. Conversely, more expensive generation sources must supply electricity when renewables are unavailable and demand is high, for example in the evening. This causes prices to rise, meaning users pay more money for the electricity they consume.

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"In general, consumers do not feel the fluctuations in electricity prices, because most tariffs are standardized, i.e. users pay a flat fee," explains Augustin. However, if users want to be rewarded for aligning their consumption with renewable energy sources, it is advisable to consider changing their electricity tariff. Time-of-use tariffs are suitable for this, as one pays the prices of the respective time of use. "With time-of-use tariffs, consumers can influence how much they pay for electricity. So the role of the consumer becomes more active," explains the expert. In an analysis of wholesale electricity prices verus renewables share, gridX found that in Germany in the first half of 2023 electricity price falls by 1.59 euros per megawatt-hour per additional percentage point of renewable electricity in the energy mix. This means time-of-use tariffs are not only attractive from a financial perspective, but also from an environmental viewpoint. Since prices are lower when renewable electricity is abundant, users are incentivized to consume electricity when renewable production is at its peak. If flexible consumers such as heat pumps, batteries or electric cars are then operated or charged – with this cheap and sustainable electricity – their flexibility can be leveraged later when prices are high. This directly reduces one’s carbon footprint, as consumption of renewable electricity is maximized.

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Augustin has one final piece of advice for all consumers: "profiting from time-of-use rates sounds extremely time-consuming and labor-intensive on the consumer side. But it doesn't have to be: there are smart technologies to do it." Smart energy management systems intelligently control the operation or charging of large consumers so that they run in the most cost-effective manner. Only in the case of certain processes, such as charging an electric vehicle (EV), is it advisable for consumers to specify some basic requirements, such as departure time or required distance of travel, so that the EV always reaches its desired state of charge. Intelligent solutions, such as those offered by gridX, can also take local solar production into account. This offers even greater potential for minimizing costs and CO₂ emissions.

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((Photo: © gridX GmbH, Reprint free of charge; Image caption))

Optimizing consumption in the blink of an eye: With smart energy management systems, consumers can maximize their sustainable energy supply by taking advantage of time-of-use tariffs.

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About gridX

gridX is Europe's leading smart energy company based in Aachen and Munich. With its IoT platform XENON, gridX enables manufacturer-independent monitoring and management of distributed energy resources. XENON allows partners to develop and scale energy management solutions faster than ever before. By partnering with gridX, Fastned is able to install more charging points at sites without the need for costly grid extensions, and the Viessmann Group is able to offer its customers intelligent and integrated home energy management systems.