Despite low market prices: why are electricity tariffs soaring again in many places?

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Which company wouldn’t want that: No matter how high it sets the price, the customer has to pay it. This is roughly how the power supply for private homes in Switzerland works. In basic supply, customers cannot choose where to buy electricity. “It’s completely at the mercy of their suppliers,” says Andreas Tresch, 33, of the Enerprice consulting firm Blick.

Of course, it is not possible for key suppliers to set the price completely arbitrarily. If they produce the electricity themselves, the production costs are decisive in terms of price. If you buy electricity, you can pass the purchase price to your customers. Conclusion: «No incentives for suppliers. It has no consequence for them whether they choose a good or bad strategy when purchasing electricity,” says Tresch.

Another 30 percent price increase

Some suppliers purchase electricity from the wholesale market in tranches of different sizes spanning several years. Others are buying electricity at the current price without a long-term strategy and have been completely affected by last year’s price boom. On average across Switzerland, basic electricity tariffs increased by 27 percent, but tripled or nearly quadrupled in extreme cases, as in the case of Oberlunkhofen AG.

Although electricity prices in the wholesale market are now well below the level of the previous year, many households will again have to live with high price premiums this year. The urban population in Winterthur ZH or Solothurn will have to spend an average of 30 percent more next year. In the municipality of Glarus, this rate is 24 percent, in Thun it is between 22 and 29 percent. The Federal Electricity Commission (Elcom) will announce tariffs for all municipalities on Tuesday.

Why are tariffs increasing again?

How are prices rising again? Suppose a utility purchases its electricity for a given year spanning three years. Later, the cheaper old slices will be removed, while the more expensive ones will be added to the current price. “There are also suppliers who are afraid of the crisis and buy a lot of electricity in very unfavorable conditions. This is now reflected in the price,” says Tresch.

Other factors causing the increased tariffs are: higher cost of capital, new tax on winter reserve and increased costs at national grid company Swissgrid.

Incomplete or poor purchasing strategies are often due to a lack of professionalism among suppliers. 630 key suppliers are responsible for keeping the lights on in Swiss homes. “Most of them are designed for small business and network operation. There is often a lack of knowledge and experience to successfully purchase electricity in volatile markets and times of crisis,” says Tresch.

Market opening as a solution?

Such a structural adjustment could be triggered by the opening of the market. Large consumers with an energy consumption of more than 100,000 kilowatt-hours per year can choose their own electricity supplier. The Federal Council wants this option to be open to private households in the future. This opening is necessary for Switzerland to sign an important electricity deal with the EU.

But in most cases the Swiss people will also benefit directly from it: With the exception of last year, the market price was always below the average price of basic services. “If the market were opened to private households, you would no longer be at the mercy of the regional supplier and you could freely choose the provider,” Tresch says.

Source :Blick