Construction costs are currently skyrocketing

We are currently experiencing strongly opposing effects. On one hand, a shortage; on the other hand, a collapse in demand. Due to the shortage and rising cost of building materials, prices are increasing despite lower demand. The regulation of the market is therefore currently not working at all.

Hello,

but rather the Merit Order principle, meaning the situation is politically influenced (with lobbying).

That is exactly the problem here. Your calculation of the fuel costs for gas is roughly correct, but only a portion of the electricity is generated by gas. I don’t have the exact share at hand right now, and it will vary greatly depending on the yield situation of the renewables, but we can assume average values of 20-30%. And technically speaking, this results in significantly lower price increases. Only the Merit Order principle ensures that electricity prices are aligned with the most expensive producer at the time.
As far as I know, this was introduced back then to give renewable energy priority (which at the time still had significantly higher generation costs than coal power). But this no longer really makes sense in the current situation and causes these crazy distortions. Whether the Merit Order principle can simply be abolished, others should judge; I’m not deeply involved enough in that.

However, we will face such situations even more frequently in the future. Even though I am a fan of the free market, the transition to renewables probably needs much more sensible steering and decisions “from above.”

Best regards,

Andreas

I don't have the exact share at hand right now, it will also fluctuate greatly depending on the earnings situation of the renewables, but we can assume average values of 20-30%.

It is less. In summer it was usually about 5% fluctuating, now in winter gas is about 20%. Although this certainly also includes some combined heat and power plants, which are needed just for heating alone.

We currently have strongly opposing effects. On the one hand a shortage, on the other hand a drop in demand. Due to the shortage and rising cost of building materials, the price rises even though demand is lower. So the regulation of the market is currently not working for the time being.

The immediate regulation of the market is more of a theoretical construct. In practice, there are long-term supply contracts with fixed prices. Once these are worked off, the adjustment does work. We can see that construction projects are being cancelled left and right or not planned at all anymore.

I always find it strange when the Merit Order is criticized (rightly) with the argument that it is not a free market (wrong). The Merit Order principle simulates the free market in the case of excess demand. You just have to imagine it with apples. A farmer can produce 10 apples a day on his plantation at a price of 1 EUR (gross retail price) each. In the village, every person wants to eat one apple a day and there are only 10 inhabitants. It works out. Now the pear farmer comes along and also grows apples but can only produce apples on his pear-optimized plantations at 2 EUR each. As long as the demand is only 10 apples, he naturally won’t sell them (unless they taste better, but let's leave that aside). But once a year there is the apple cider festival and during the 10 days people need 2 apples per day, one to eat and one to drink. What happens then? Does the apple farmer sell his apples for 1 EUR and the pear farmer his for 2 EUR? No. Both can achieve a higher price until the demand is met. The pear farmer earns more than he otherwise would, since he now sells apples in addition. The apple farmer also earns more, since he makes more per apple.

Electricity is not a storable commodity and only poorly storable, but above all you don’t want supply to exceed demand (grid stability), so actually no one should produce more than they can sell. But if the demand (electricity demand) is higher than the supply of the "cheap providers," this should also be produced and at the same time the cheap providers should benefit from being able to produce more cheaply, as in a free market. That’s why the Merit Order principle exists.

I’m not saying that this is good and right, but Merit Order initially has not so much to do with market distortion, but with market simulation.

Does the apple farmer sell his apples for 1 EUR and the pear farmer his for 2 EUR? No. Both can achieve a higher price until demand is met.

We are currently more in the area of, oh, the pear farmer ran out of fertilizer and raises the price to 10 euros. Besides, we don't need 20 apples but rather 11-12, and the 1-2 extra apples cause the others to also be priced at 10 euros... So in other sectors without a merit order, prices would generally rise sharply in case of doubt, but you also don't want to scare off the customers, so maybe not quite that extreme, not that fast. In the long run, this usually causes either demand to drop ("everything is just too expensive! I won't eat apples anymore!") or supply to increase ("look how much the apple farmer is earning right now! You can make a ton of money!"). Presumably, this also happens with electricity sooner or later, only it doesn't all happen that quickly and maybe the new apples don't taste that good... uh... okay, maybe that was taken a bit too far :D

Yes, that's exactly why I also don't say that it is so good. But it is not a totally unfair market because of the Merit Order. Instead, the market is unfair.

And yet, if the demand is that high, then the last two apples would determine the price of all. Assuming transparency.