Despite record conditions, Ostrom continues with its electricity at cost model

Ostrom has always offered a flexible tariff with no minimum contract period and 100% green energy. We continue to sell electricity at purchase price and only charge a monthly basic fee of 6€. Therefore, Ostrom does not profit from the rising electricity prices, as the purchase price for us also increases by the same amount as for our customers. In fact, we have decided not to pass the peak August prices to protect you, our customers, from the worst of the crisis so far.

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We will outline the reasons for the adjustment and explain why we are forced to raise prices.

Why Have Wholesale Energy Prices Hit Record Highs?

‍1. Nord Stream 1 Indefinite Closure: The natural gas pipeline deliveries have gone down to 0% of the total as Russia tries to exert geopolitical leverage on the ongoing Russia-Ukraine war. To illustrate with a simple analogy — palm oil has become more expensive due to the Russia-Ukraine war because there is a low supply of sunflower oil. Likewise, renewable energy sources go up in price as the supply of natural gas and other energy sources decline.

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2. Filling Up Gas Storage For Winter: Germany has been ahead of its goal of reaching 95% gas storage capacity by November 1, 2022. This increased overall energy demand has put upward pressure on wholesale energy prices.

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3. Increased Exports to France and Switzerland: Given that the European grid is interconnected (wide area synchronous grid), the recent droughts have caused France & Switzerland to import more energy from Germany as the rivers which cool their nuclear power plants have dried up.

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4. Merit Order Effect: Even though Ostrom only sources from green energy, high oil, and gas prices still impact overall energy prices due to the merit order effect (see image below or read more about it here and here). As mentioned, an easier way to think of it would be that lower oil and gas supply increases their price which in turn drives up demand, and hence price, for other sources of energy such as renewables. Even the Federal Minister for Economic Affairs and Climate Action Robert Habeck has discussed this mechanism recently.

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How We Respond at Ostrom

1. Electricity-At-Cost Model: As we have always shown, our energy-at-cost model means that no one gets stuck with inflated costs because as soon as prices go down, we pass on those savings to you. As we showed in our blog post, a flexible model is cheaper in the long run.

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2. Observe Energy Markets: We have and will only raise prices after carefully considering and forecasting everything impacting wholesale energy prices.

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3. We Don’t React To Spikes: We anticipated that prices would come down from their record highs. We managed to swallow those record prices instead of passing this directly to you. This way we protected our customers to the of eating into our own margin.

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4. Renewables Push: We continue to invest in renewable capacity through direct PPAs, which reduces economic and geopolitical dependence on fossil fuels.

Further Relief and Positive Trends for Customers

1. Energiepreispauschale (EPP): The German government has implemented a 300€ one-time payment to help consumers cover energy costs. These are received in employees’ salaries.

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2. Government Energy Price Cap: As part of the third relief package by the German government, the energy price up until a certain threshold (about 1400 kWh / year for a single household) will be capped in 2023. All electricity consumed above this threshold is priced at then current market price.

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3. Voluntary Gas Demand Reduction of 15%: The European Commission has pushed for a 15% reduction in energy usage in businesses and government. Lower total energy demand helps relieve electricity prices for households.

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4. LNG Terminals: Germany has already leased LNG terminals to make sure the energy dependence on Russia is lowered and supply for the winter months is secured.

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5. Runtime extension of Nuclear Power Plants: Two of the three remaining nuclear power plants in Germany will remain powered until April of 2023. This way making sure, enough energy is available for the winter months.

Stay Flexible and Benefit Once Prices Calm Down with Ostrom

The only way to ensure you’re getting a good deal in such a turbulent energy market is by signing a flexible contract! Signing a 12-24 month price guarantee now will only lock you in to high prices long after the market has stabilized. This will lead to an expensive back payment (Nachzahlung) at the end of the contract duration. You can read more on why price guarantees in the long run end up being more expensive than flexible tariffs here.

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If you have any questions or suggestions, you can always contact us by email at hallo@ostrom.de or by phone at +49 30 31199 888.

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Continuing to solve the energy crisis,

Matthias, Karl, and the Ostrom team