The future of electricity pricing: How dynamic electricity prices contribute to the energy revolution

With the ongoing energy crisis and the continuing dependence on imports of fossil fuels, the motto is, more than ever, to save energy. The move away from an aging fixed price model towards variable tariffs, also known as dynamic prices, has considerable potential for efficiency optimization and creates benefits for both consumers and energy suppliers: For purchasing electricity outside peak hours, variable tariffs offer consumers financial incentives in the form of lower market prices. Because they can decide for themselves whether they prefer to consume electricity at lower rates, households have more control over their individual electricity bills. For network operators, on the other hand, variable tariffs are a helpful approach to averting network bottlenecks.

Time-variable tariffs as a means of differentiating from competition

Prices on power exchanges are highly volatile and fluctuate over the course of the day depending on supply and demand. For customers with dynamic tariffs, which can be both time and load variable, it is therefore no longer just a matter of how much electricity they consume, but also when they obtain it.

In Europe, new legislation is increasingly being introduced that oblige energy suppliers to offer variable tariffs. Innovative utility companies, including mostly new market participants, who are also often referred to as neo-utilities, have already responded and added time-variable tariffs to their product portfolio. In some cases, time-variable tariffs are even an integral part of their brand identity. The introduction of time-variable tariffs ensures greater transparency in the complex pricing mechanisms of the energy market. This gives consumers the opportunity to adjust to dynamic prices, adjust their consumption patterns and thus significantly reduce electricity costs.

The gap between supply and demand

The main aim of variable tariffs is to reflect the temporal imbalance between available electricity from renewable sources of generation and demand from consumers. If more and more renewables connect to the grid and consumer prices are still static, i.e. consistent throughout the day, there is a discrepancy between the time of energy production (for example during the day when the sun is shining via photovoltaic systems) and the time of energy consumption (for example when cooking dinner).

Variable tariffs address this problem by allowing energy suppliers to adjust prices in real time based on energy availability and demand. In keeping with the low marginal costs of renewables, this ideally means that electricity is cheapest when the sun is shining or the wind is blowing.

As a result, variable tariffs can significantly influence consumer behavior: the sometimes significant price differences can motivate consumers to shift their energy consumption to periods when renewable energy is available in abundance. This not only helps our society to avoid fossil fuels, but also increases the stability of the power grid, provided that we reduce peaks in demand. This not only improves the security of the domestic energy supply, but also reduces dependence on international energy supplies.

Dynamic prices are on the rise — also in Germany thanks to new laws

Dynamic electricity pricing is not a new concept, but was introduced in a simplified form as a double tariff back in the 1980s and 90s. Back when the share of nuclear power in the European electricity mix was still increasing, households were rewarded for their consumption at night with lower electricity prices. This was due to the fact that nuclear power plants produce electricity in bandwidth and cannot be easily adapted to industry demand cycles, which consumed the majority of their electricity during the day. In view of solar power, such a tariff is considered obsolete today.
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Will variable time tariffs become the new gold standard in electricity pricing?

Time-variable tariffs as a sub-category of dynamic tariffs are increasingly being introduced across Europe. However, they are based on fixed times of day or on the national electricity mix. Both can be seen as a limitation of the concept. If you really want to create incentives for equal local electricity demand and supply, you would have to introduce regional or load-variable tariffs. Although these are technically more complicated to implement, experts rate their effects on relieving the power grid as extremely positive. Exnaton expects that we will see more and more tariffs that specifically take into account local electricity supply.

However, a lot has happened since then: Today, time-variable tariffs take supply and demand into account on an hourly basis or often even at 15-minute intervals, reflecting the production cycles of renewable energies. The Scandinavian countries in particular introduced time-variable tariffs some time ago, which is why they are considered pioneers of dynamic pricing. In Germany, too, the concept is slowly picking up steam. More and more Neo-Utilities rely on time-variable tariffs and offer energy products that send price signals to their customers in real time.
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Traditional energy suppliers, on the other hand, have so far stuck to flat electricity prices for a number of reasons:

• The topic is highly complex: a lack of knowledge and interest on the part of customers in how to reduce electricity costs
• Lack of infrastructure: insufficient availability of digital electricity meters (smart meters) as a technological requirement for variable tariffs
• Implementation challenges: high effort involved in billing thousands of measurement values with different prices
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All of this is changing now

Since this year, medium-sized and large energy supply companies have been required to offer dynamic tariffs. By 2025, the majority of the approximately 1,000 utility companies will have to follow suit. Since the German regulatory authority instituted the Energy Industry Act (EnWG), all electricity consumers (with a smart meter installed) should be able to obtain a dynamic tariff (EnWG §41a). In practice, this means that spot market (at 15-minute intervals) and day-ahead prices (at hourly intervals) are included in electricity bills. As a result, energy suppliers must adjust their tariff offers accordingly. However, this does not have to happen overnight, but is subject to the following deadlines, depending on the size of the company:

• 1.1.2022: Utilities with more than 200,000 electricity customers
• 1.1.2023: Utilities with more than 100,000 electricity customers
• 1.1.2025: all suppliers
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Driving forces behind dynamic electricity pricing

How does the electricity price brake affect consumers who have opted for a product with variable tariffs?

Many European countries have already announced an electricity price brake with the aim of counteracting high consumer prices in the energy crisis. In Germany, 80% of private households' energy consumption is capped at 40 ct/kWh (including network charges and taxes); the remaining 20% is consumed at normal prices. Exnaton believes that the introduction of the electricity price brake has a strong positive effect on the acceptance of variable tariffs, as it prevents electricity prices from exceeding exorbitant thresholds.

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Exnaton makes it easier than ever for energy suppliers to introduce variable tariffs

Our innovative billing software enables energy suppliers to introduce time-variable tariffs as a new product for their customers. Our white label SaaS platform, which is already known for implementing energy communities or energy sharing under EU Directive RED II, is used by more than a dozen energy supply companies in four countries.

The platform complies with all regulatory requirements of the Energy Industry Act (EnWG § 41a), processes energy and price data every 15 minutes and visualizes energy costs in a format that is easily accessible to end users. Another important feature is the possible integration with SAP IS-U, which makes the introduction of such products easier than ever for many energy supply companies. The new SPOT product was developed in close cooperation with one of the largest energy supply companies in Germany and has been available to all existing and future Exnaton customers since January 2023.

As a multi-award winning spin-off company from ETH Zurich, one of Europe's most renowned technology universities, Exnaton is also supported by first-class venture capital funds such as True Ventures from Silicon Valley, Global Founders Capital from Germany and Ventures from Switzerland the day after tomorrow. Our team of competent energy experts is at your side and develops a specific energy solution for your needs and those of your customers.

Get in touch with us to find out more about our SPOT product and take a step into the future of electricity pricing.
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