High electricity prices and more price fluctuations

FAU economist disillusions economy and society

Companies and consumers have high hopes that electricity prices will return to levels seen before the coronavirus pandemic. After Russia’s invasion of Ukraine and the departure from using Russian gas, energy costs rose to record levels. However, from a scientific point of view, there will be no return to previous normal levels. Quite the contrary, in fact. The price of wholesale electricity at the beginning of 2025 is on average between 94 and 114 euros per megawatt hour (MWh). That is more than six times the price before the energy crisis. However, the prices per MWh on the energy market can fluctuate between around –100 euros and around 1000 euros at short notice. “The purpose of our study is not to generate detailed predictions about prices,” emphasizes Prof. Dr. Mario Liebensteiner, Professorship for Energy Markets and Energy Systems Analysis at Friedrich-Alexander-Universität Erlangen-Nürnberg (FAU). “Instead, it predicts a very high and, above all, volatile price level for wholesale electricity in the years to come.” The study called “High electricity price despite expansion in renewables: How market trends shape Germany’s power market in the coming years” has recently been published in the journal “Energy Policy”.*

Study predicts prices until 2030

The study by Prof. Liebensteiner, Anas Abuzayed, who is a doctoral candidate at FAU, and Dr. Fabian Ocker from TenneT TSO GmbH, considers the most important market trends for the development of the price of electricity in Germany until 2030. It therefore provides politicians with guidance based on facts for shaping future energy policy. This is because Germany as a location for business and industry is at greater risk compared with other countries according to the prognosis. At the same time, the paper provides valuable information to industry and business as to which investments relevant to energy costs are probably worthwhile. It also informs consumers whether solar panels on the roof, a heat pump or an electric car could be worthwhile.

Systematic calculations of market trends

“The prediction for the electricity price corresponds to what’s know as the baseline variant of the scenario prognosis. It takes the most important influencing factors and assumes continuous development without any upheaval such as economic crises or any more wars,” explains Mario Liebensteiner. “Further planned expansion of renewable energies will ensure a downward trend in the price of electricity.” At the same time, growing demand for electricity increases the price. The increase in demand is driven, for example, by e-mobility, heat pumps, heating and cooling in buildings, computing centers and, potentially in the future, electrolyzers for hydrogen production. Energy costs are also set to rise due to the continuous increase in the price of CO2, which has a negative impact on fossil fuels such as coal in particular. The price of gas, which is currently considerably higher due to the geopolitical situation with Russia, is leading to higher electricity prices. The study, however, anticipates a moderate price increase. Another influencing factor is the export and import of electricity within Europe. Germany’s special route with its phaseout of nuclear power tends to make energy consumption more expensive.

Various scenarios

The basic scenario predicts an exchange price for electricity until 2030 that could be almost three times as high as the price before the energy crisis. If the growth in renewable energies is higher during the next five years while other factors remain the same, the electricity price during the next five years could continue to decrease. The study identifies Germany’s departure from nuclear power as a factor for driving the price upwards. Available nuclear energy would have a significant effect on the electricity price level. However, Liebensteiner points out that factors known as externalities have not been taken into consideration in the study. These include the general risk associated with nuclear power or the costs for the interim storage and disposal of waste.

The scenario analysis also shows the significant pressure caused by higher post-consumer electricity consumption, for example due to the electrification of industrial processes. Higher gas prices or a higher increase in the price of CO2 also drive exchange prices upward.

Price surges for electricity are the new norm

The increasing proportion of renewable energies in the electricity generation mix will ensure greater upward and downward fluctuations in price on the exchange in the future. This volatility can occur during one day, from day to day, or according to the season of the year. For example, in mid December, dark doldrums occurred where there was not enough sun or wind, leading to a short-term price increase to around 1,000 euros per MWh. “On a sunny afternoon, the electricity price can sometimes slip into negative figures. This means consumers receive money when they consume more in periods where over-production of wind and solar energy occurs,” explains Mario Liebensteiner.

Econometric model for informed political debate

An econometric model forms the basis for the study with its scenario predictions. It uses historical electricity market data for Germany from 2015 to 2023. This makes the influence of defined market trends understandable in retrospect (ex post). It clearly illustrates the interplay between wind and solar electricity, demand for electricity, nuclear power, CO2 certificates, gas prices and power trading on the wholesale electricity price on the exchange. In contrast to most studies conducted to date, Liebensteiner investigated a comprehensive series of long-term drivers of the electricity price.

The results of the study facilitate a well-informed political debate about market design as well as about how to provide assistance to lower-income households. In industry, expectations about the price of electricity in the future influence specific investment decisions.

Further information:

Prof. Dr. Mario Liebensteiner
Professorship for Energy Markets and Energy Systems Analysis
Tel: 0911/5302-96204
mario.liebensteiner@fau.de