What are the costs of renewables in Germany?
Wind and solar energy have become the cheapest sources of electricity in Germany, driven by supportive policies like Germany’s Renewable Energy Sources Act (EEG). What effect have renewables had on consumers’ electricity bills?
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Wind and solar PV
Today, wind energy and solar PV are the cheapest sources of electricity generation in Germany and most parts of the world.12 Since 2000, the German Renewable Energy Sources Act (EEG) has ensured relatively stable investment conditions for renewable energy producers, stimulating innovation, technological advancement and incentivising greater market integration. This supportive investment framework, along with the globalisation of production, has helped reduce costs further, making renewable energy technologies accessible and affordable for a greater number of countries and people.
According to the International Renewable Energy Agency (IRENA), the global average costs of onshore wind power and solar are now USD 3.3 cents/kWh and USD 4.4 cents/kWh, respectively. Countries with prime wind and solar conditions, such as Morocco, Chile and the United Arab Emirates, are developing projects at even lower costs. Germany’s onshore wind and solar generation costs are higher than the global average due to Germany’s lower wind speeds and below-average solar resource. For onshore wind, the generation costs in Germany are currently around EUR 6 cents/kWh and for solar, around EUR 5 cents/kWh for ground-mounted projects, making them lower than any other power generation technology (see charts below). The same is true in many countries around the world.
Furthermore, renewables increase energy independence by reducing countries’ structural dependence on imported fossil fuels, also functioning as an energy security hedging strategy against fossil fuel price increases and volatility. IRENA estimates that the world has saved over USD 400 billion in fuel costs in the power sector since 2000 due to the use of renewable energy.12
Finally, the high share of renewable electricity in the power mix has the further effect of reducing prices on the wholesale electricity market. This reduction occurs through what is known as the “merit-order effect”: renewable energy sources like wind and solar have zero marginal cost (no fuel costs) and are therefore dispatched first, pushing technologies with higher marginal costs out of the market (indeed, power plants in the market are called in ascending order of marginal costs until demand is met, and the market price is set by the last power plant that is called upon (for more information on the merit-order effect and how it works in Germany, see A Word On Flexibility). Due to this price-dampening effect on wholesale electricity market prices, renewables are saving customers billions through lower electricity prices.13
Impact of renewables on consumers' electricity bills
The low operating costs ofrenewables reduce the price of electricity during sunny and windy periods while shielding consumers from fossil fuel price volatility. Renewables thus protect consumers from global energy crunches such as those experienced since late 2021.
Today, grid charges (28%) and procurement costs (43%) currently represent more than two-thirds of the electricity price for households. Both of these components have risen in the last decade, and this trend is expected to continue in the long term. While procurement costs have decreased since 2023, they remain influenced by global market dynamics, geopolitical tensions, and rising carbon prices. Infrastructure costs, however, are likely to make up an increasing share of the overall price due to the need to modernize the grid. The ongoing expansion of the grid is essential to support a more decentralized energy system and accommodate the growing demand and new generation portfolios. Despite these rising costs, renewables—with their stable and near-zero marginal costs—help to mitigate overall electricity price increases, despite occasional integration challenges (see Merit Order).
Historically, renewable energy projects in Germany were funded by the EEG levy, a key component of the electricity price. To alleviate financial pressure on consumers, the renewable energy levy was abolished and replaced in July 2022 by a financing mechanism in the general state budget. This change ensures that the differential costs are no longer passed on to electricity rate payers but rather to all taxpayers, leveraging Germany’s progressive tax system to distribute costs more equitably.
Electricity price increases during the fossil energy crisis
The global fossil energy crisis triggered by the Russian invasion of Ukraine caused household electricity prices in Germany to rise sharply in 2022 and 2023, especially for customers with new supply contracts. This was due to Germany’s dependency on fossil fuel imports, notably of Russian gas. In fact, countries with higher shares of renewables in their energy mix were less impacted by the fossil fuel-driven price spikes.
Between 2013 and 2021, German household electricity prices remained relatively stable at EUR 0.28-0.32/kWh. However, by 2023, at the height of the energy crisis, prices had jumped to about EUR 0.45/kWh – a EUR 0.12/kWh increase compared to 2021. This was mainly due to lower fossil gas supplies, reduced availability of nuclear power plants in France due to maintenance issues, and problems in coal logistics caused by low water levels. The price of electricity fell again in 2024 and is expected to continue falling in the coming years. Several studies indicate that a more rapid and earlier expansion of renewable energy in Germany could have mitigated the high energy prices.14, 15
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