The composition of electricity prices and the new electricity tariff structure
The price of electricity is made up of three elements: energy price, grid tariff and taxes.
- the energy price is defined by the electricity supplier, who buys electricity and sells it to consumers. This price is determined by the stock market price ;
- taxes (electricity tax, VAT, compensation mechanism) are imposed by the Government. Currently, the tax on the compensation mechanism is negative; it acts as a ceiling on the price of electricity ;
- the cost for the electricity grid, i.e. the electricity transmission infrastructure. This grid cost is regulated by the ILR (Institut luxembourgeois de régulation) and collected by the electricity network operators.
All these elements are billed by the electricity supplier, with details of each component shown on the final bill.
New electricity grid tariff structure from January 2025
As of the 1st of January 2025, the Institut Luxembourgeois de Régulation (ILR) and the grid operators will introduce a new tariff structure for the use of the electricity grid.
The aim of this new tariff structure is to contribute to the development of a modern and secure electricity grid, adapted to digitalisation and electrification by avoiding simultaneous use. This will limit the need to reinforce the network and, consequently, reduce costs for all users.
The grid tariff: what will change?
The grid tariff will be based to a greater extent on the power being used, and less on the amount of energy consumed. In practical terms, this means that from now on :
- a need for more power will lead to higher grid charges ;
- simple gestures can help to avoid these increases, for example by spreading the required power over time ;
- electricity will not cost more in the evening! The fees for using the grid are the same throughout the day. What actually makes a difference is the total power drawn simultaneously by each individual consumer from the grid.
Detailed explanations on how the grid tariff works are available on the Institut luxembourgeois de régulation website.
How will electricity prices change from 2025?
Generally speaking, changes in the price of electricity are planned to take effect on the 1st of January 2025. The price ceiling for electricity provided by a state subsidy, which has been in place since the 1st of January 2023, will be lowered, but will still limit the price of electricity. This adjustment will also help to offset the increase in the grid tariff.
For a standard single-family house or appartment, the changes in electricity costs are as follows:
(based on the examples provided by MECO, see link above)
With regard to those who have already adopted energy transition measures, their energy costs for electric alternatives (electric cars or heat pumps) are still financially more advantageous than conventional fossil fuel alternatives.
The energy transition is consequently still a worthwhile investment!
Every consumer can of course take action to avoid power peaks.
Generally speaking, all users can contribute to a more efficient use of the network by being more flexible in their consumption.
In addition, it is recommended to limit the simultaneous and intensive use of several household appliances, although it is rare for the simultaneous use of standard household appliances to exceed the reference threshold of 3 kW.
Understanding the difference between power and energy consumption
Power (kilowatts kW) and energy consumption (kilowatt hours kWh), which are often mistaken for each other, are two essential energy measurements that you will see on your electricity bills.
What is the difference between power and energy consumption? Let's take the example of a tap and a bucket. The difference between power and energy consumption can be compared to the flow of water into a bucket:
- power is the speed at which the water flows from the tap. If it flows quickly, the bucket will soon be full. This corresponds to high power ;
- energy consumption is the amount of water that has been filled into the bucket. The more water there is, the more energy has been consumed.
Energy is only consumed if I use a certain amount of power for a certain amount of time. The two concepts therefore differ on the time factor: the longer I use a power, the more energy I consume.
The example of the tap and the bucket can also be applied to electricity, with an electric cable and an oven: the oven has a power of 2 kW. This electrical power is supplied by the cable when the oven is turned on. The energy consumed corresponds to the heat in the oven.
Energy consumption is calculated using the time the oven is on: if it is used for 30 minutes, the oven's energy consumption corresponds to 2 kW times 0.5 hour, which is 1 kilowatt hour. If I use the same oven for two hours, the energy consumption would be equivalent to 2 kW times 2 hours, i.e. 4 kWh.
These two aspects will henceforth be important in network pricing: power, i.e. the speed at which I use electricity, and the amount of energy I consume.
You can find more information on the new tariffs in these additional documents.