The prices charged by the largest energy companies are high, but their rates are not unreasonable. According to the Netherlands Authority for Consumers and Markets (ACM) Essent, Vattenfall and Eneco did not abuse last year’s energy crisis.
Their profit was not suddenly higher last year and in practice that result amounts to “a few tens” per household. The profit on the sale of gas and electricity was a maximum of 5 percent of turnover in 2022, and in the first three months of this year there are no indications that large energy companies are abusing the high market prices. In the coming months, the regulator will focus on the pricing policy of the larger energy companies that fall outside the top three, such as Budget Energie and Greenchoice.
According to ACM, the profit margins of 0 to 5 percent that it observed were below the level of previous years. The fact that they were “a lot lower than expected” is mainly due to the higher purchasing costs. Contrary to the expectations of the three large companies, almost all people canceled their permanent contracts, which meant that they had to purchase extra energy. Due to the high prices at that time, those extra purchases cost more money.
The lower profit margins are a result of higher purchasing costs
Trading desks
Sjak Lomme, independent consultant and former energy trader, had counted on more in-depth research. “It seems that only a reasonable profit for the national organizations has been considered, not how it was achieved – nor the profit of the parent companies.”
According to Lomme, large international energy companies have central trading desks, while the regulator has focused on the national level. “Such a trade desk can assign unfavorable deals – not everything in trade turns out well – to certain national brands. That is speculation, but if it happens, it falls outside the scope of this investigation.”
The higher prices for gas and electricity are mainly the result of increased purchasing tariffs on the wholesale markets, ACM notes. The biggest craziness is now over, but prices are still historically high. cost two years ago gas per megawatt hour is still 16 euros, but last year prices exploded, mainly due to the threat of a Russian gas boycott. From July to October, the price did not fall below 150 euros. This Wednesday, the gas price fluctuated around 47.50 euros, still three times the level of 2021.
These extreme price changes increase the risks for energy companies, according to ACM. Those suppliers charge the risks to the customer through a surcharge of about 10 percent on the wholesale price. That surcharge has risen in the past two years, the regulator concludes, but the risks are also higher.
Hectic market
Energy companies run risks because they can never estimate exactly how much gas and electricity they have to purchase. For example, because no one knows how cold it will be next month. Then too much or too little may have been purchased. The war in Ukraine has made the market much more hectic, which has also increased the risks. Until two years ago, prices were lower and more stable.
In addition to the international political situation, the energy transition is also causing greater uncertainty. The energy production of wind turbines and solar panels depends on weather conditions, which means that the purchase prices can vary even more.
A major annoyance for many energy customers is that they may pay more than their neighbour. ACM acknowledges that there are price differences, even with the same supplier, but according to the regulator these can be explained. Energy companies purchase for groups of customers for a certain period of time: due to fluctuations in the wholesale market, you can be more expensive or cheaper than your neighbour.
Consultant Lomme is critical of ACM’s understanding of this. “These types of divisions undermine the foundations of the free market,” he says. “Apparently you can treat customers arbitrarily, as long as the supplier does not earn too much from it. Companies can have a good reason for this, but for me as a customer such a classification feels arbitrary.”
The result, says Lomme, is that you just stay put as a customer, because with a different supplier you can also end up in a more expensive group after a while. “In the mortgage market it has been forbidden for years to distinguish between customers with a comparable risk profile.”
German prices
Comparison site operators emphasized last year that prices in Germany were much lower. That’s right, ACM now says, but there were logical reasons for this at the time. In Germany, for example, it is not possible to terminate a permanent contract prematurely, so that suppliers can immediately purchase the energy required for the entire term of the contract. This leads to less risk premium and ‘early’ purchasing is advantageous if prices continue to rise.
Now that prices are falling, according to ACM, the reverse situation is starting to emerge. Gas prices are now lower in the Netherlands than in Germany. This does concern the basic rates: not only is the tax higher here, but energy suppliers also charge the costs of the network operator. This concerns energy transport to the end customer. These costs are charged separately in Germany.