Is now a good time to switch energy providers in Germany?

On Jan 27, 2023

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Why are energy prices going down?

Last year, energy prices in Germany rose to record heights following the Russian invasion of Ukraine. But now, partly thanks to a milder winter than initially feared, market prices for gas and electricity have taken a downturn.

So far, however, most consumers are yet to benefit from the lower prices, as they are still being supplied with the electricity and gas that suppliers bought at higher prices last year.

This is particularly the case with the so-called basic suppliers (Grundversorger) – the companies that supply most customers in a region (such as Vattenfall or GASAG) – as they tend to buy electricity and gas on a long-term basis, in some cases years in advance.

Last year, this meant that the basic suppliers could still offer the lower prices of the past, but gradually, they have had to raise their tariffs.

“As a result, they now have some catching up to do and are passing on the high procurement prices to customers,” Christina Wallraf, an energy expert at the consumer advice centre in North Rhine-Westphalia explained.

Who is offering low prices?

Gas and electricity prices from so-called alternative suppliers – energy companies other than the basic suppliers – are now falling across the board.

This is because such suppliers have a short-term procurement strategy, which means they can “pass on favourable market prices more quickly than the basic suppliers buy for longer periods”, Hans Weinreuter from the Rhineland-Palatinate consumer centre explained.

For new customers – energy shoppers who join a new provider – prices are considerably cheaper than they were a few months ago.

A green plug in front of an electricity bill. Photo: picture alliance / Jens Kalaene/dpa-Zentralbild/dpa | Jens Kalaene

The current average price of a kilowatt hour of gas for new customers is currently around 14.3 cents – 64 percent less than the average at the beginning of September last year when it reached a peak of around 40 cents.

Electricity prices for new customers have also dropped by around 24 percent since mid-October, when a kilowatt hour of electricity for new customers still cost an average of 56 cents, whereas the current price is 42.7 cents.

For basic suppliers, the prices have moved in the opposite direction. Since the beginning of September, basic gas supply prices rose on average from 12.7 to 17.7 cents per kWh, while the price of basic electricity supply rose by 27 percent – from 36.8 to 46.6 cents per kWh since mid-October.

When does it make sense to switch?

Numerous consumer advisors recommend those who are currently stuck in very expensive tariffs to look around for alternatives.

“That’s where a look at possible alternatives makes sense,” says Hans Weinreuter from the Rhineland-Palatinate Consumer Center.

Udo Sieverding, an energy expert at the consumer advice centre in North Rhine-Westphalia, told the Berliner Taggespiegel: “Anyone who wants to switch now has a good chance of finding a cheaper tariff.”

He added that there is no rush, however, and said that he considers “the risk of prices at discounters going up again in the next few months to be low”.

A man turns up the thermostat on a radiator. Photo: picture alliance/dpa | Hauke-Christian Dittrich

However, Julia Schröder, an energy law expert at the Lower Saxony consumer advice centre, recommended that consumers should not take the decision to switch suppliers lightly, as this usually means being bound to a new provider for one or two years when “nobody can foresee” how prices will develop over the next 24 months. A change would therefore be worth it only if it resulted in substantial savings, she advised.

However, Ingbert Liebing, CEO of the Association of Municipal Enterprises (VKU), recently criticised the appeals of experts to consumers to switch from basic suppliers to discounters with cheap tariffs.

“It was foreseeable that now again soldiers of fortune would enter the energy market and think they can make a quick deal, at the expense of the municipal utilities and basic suppliers,” he said of the lower tariffs currently on offer by alternative providers.

He warned against cheap tariffs that lure customers in with low prices for a short period of time and then raise them again in a matter of months.

Can I switch from a basic to a discount provider?

Theoretically, switching from a basic to an alternative energy provider should be straightforward. Unlike those in contracts with special tariffs, customers of basic suppliers generally have the legal right to cancel at any time with two weeks’ notice and look for another supplier.

Those who are not with a basic supplier should look at their documents and check for how long their current gas supply contract is still valid. If there is a supplier with more favourable conditions, it may be worthwhile to terminate the contract.

Oncoming price brakes

Another thing to bear in mind when considering whether to switch energy suppliers is the oncoming price brakes for gas and electricity.

In the case of electricity, 80 percent of consumption will be capped at 40 cents per kilowatt hour from March, backdated to January. The same applies to gas: from March, backdated to January, natural gas customers will receive a state-guaranteed price of twelve cents per kilowatt hour for 80 percent of their previous annual consumption.

A person holds a wallet with cash. Photo: picture alliance/dpa | Lino Mirgeler

Despite the price brakes, it can still be worth switching if the contractually agreed energy price with your current supplier is over 40 cents per kilowatt hour for electricity and over twelve cents per kilowatt hour for gas.

That’s largely because the price brakes for electricity and gas are currently limited to just one year.

“If the price brakes are not extended, every kilowatt hour consumed will cost the regular contract price again next year. This is another reason why it will be important for consumers to choose the cheapest possible tariff this year,” said Thorsten Storck from Verivox.