Fixed costs · Glossary

Fixed costs are costs that do not depend on the production volume in the period under consideration. A power plant, an electricity grid, a substation, a control room or a metering infrastructure causes such costs even if little or no electricity is generated, transported or billed in a particular hour. Typical fixed costs are the capital costs of the assets, i.e. depreciation and interest on the capital employed. In addition there are leasehold payments, insurance, the core staff for operation and monitoring, administration, and time-dependent maintenance and repair components. One-off expenditure for planning and permitting is incurred before commissioning. It is usually attributed to the investment and afterwards acts as a fixed cost via the capital costs.

The opposite concept is variable costs. They grow with the amount of energy actually generated or transported. In a gas-fired power plant, fuel and CO₂ costs are predominantly variable because they rise with every kilowatt hour generated. The investment in the turbine, the grid connection, recurring inspections and part of the staff, by contrast, are incurred regardless of whether the plant runs 500 or 5,000 hours a year. The boundary is not always sharp. Part of maintenance depends on operating hours and starts, for example the overhaul of a gas turbine. Cost studies therefore often split operating and maintenance costs into fixed and variable components. Fixed costs are thus not a moral or political category. The term describes how costs behave in relation to capacity utilisation.

The appropriate reference quantity is usually not the individual kilowatt hour but the capability provided: capacity, grid capacity, availability, connection possibility or operational readiness. After construction, a photovoltaic system has very low variable costs per kilowatt hour. Its investment, however, must be recouped over many years. An electricity grid is not rebuilt for every kilowatt hour transmitted. It is designed for connection capacity, simultaneity of use, safety reserves and expected load flows. Fixed costs therefore arise above all in infrastructure and capacity, not in the short-term amount of energy.

Distinction from variable costs, full costs and sunk costs

Fixed costs are often equated with high costs. That is imprecise. Wind power, photovoltaics and grid infrastructure have high fixed costs and low variable costs. A rarely used fossil peaking power plant, by contrast, has comparatively low fixed costs per kilowatt but high variable costs due to expensive fuel. For the decision whether a plant runs in a particular hour, the variable costs are what mainly count. They determine whether production is worthwhile at the given market price. What remains beyond the variable costs is the contribution margin. The fixed costs must be paid out of it. The short-term view is therefore not sufficient for investments and long-term security of supply.

Full costs comprise all costs attributed to a service or an amount of energy. They include fixed and variable components and, where applicable, also overheads, financing costs and decommissioning costs. One example is the levelised cost of electricity. Common methods convert all expenditure over the lifetime into a present value and divide it by the discounted value of the expected electricity generation. The annual costs are made up of fixed and variable operating costs, for example for maintenance, repairs and insurance. The result is a value in cents per kilowatt hour. It depends strongly on the assumed full-load hours and on the capital costs. It is useful for comparisons. However, it obscures how different the cost structures of the technologies are. A plant with high fixed costs reacts differently to market prices and capacity utilisation than a plant with high fuel costs.

Sunk costs are likewise not the same as fixed costs. Sunk costs have already been incurred and can no longer be reversed by today's decisions. Fixed costs, by contrast, may also be incurred in the future and can be avoidable: if a plant is decommissioned, a contract is terminated or an investment is not made in the first place. For the short-term dispatch decision of an existing power plant, many fixed costs no longer play a role. When the question is whether the power plant stays in the market or is replaced, the still avoidable fixed costs count again.

Significance in the electricity system

In the electricity system, fixed costs play a particularly large role because it is based on long-lived assets. Power plants, storage facilities, lines, substations, grid control technology, metering systems and IT platforms are built long before they are used over the years. Whether their financing pays off depends on whether the expected revenues cover the fixed costs over the lifetime. The cost of capital, i.e. the required return on equity and debt, is also important here. Fixed costs are therefore a key concept for investments, grid charges, electricity tariffs, capacity mechanisms and the comparison of generation technologies.

In the electricity market, short-term wholesale prices usually form according to the merit order. The plants are sorted by their marginal costs, and the most expensive power plant still needed sets the price. Plants with low variable costs can bid very cheaply because an additional kilowatt hour hardly costs them anything more. That is why wind and solar plants place very low bids on the exchange. This does not explain, however, how the investment in these plants is recouped. For that, operators need revenues from market prices, including rare scarcity prices, from support mechanisms, long-term supply contracts or other forms of financing. Anyone who reads exchange prices as a reflection of the total cost of electricity overlooks the difference between short-term dispatch and long-term cost recovery.

For electricity grids, the fixed-cost logic is even more evident. A large part of grid costs arises from planning, construction, operation and maintenance of the infrastructure. Whether a line is heavily or lightly loaded in a given hour changes these costs only little. The grid charges must nevertheless cover the costs and at the same time create incentives for efficient use. In Germany, this has so far been regulated by § 17 of the Stromnetzentgeltverordnung (Electricity Grid Charges Ordinance, StromNEV). For offtake points with capacity metering, the grid charge consists of an annual capacity price in euros per kilowatt and an energy price in cents per kilowatt hour. The capacity price is multiplied by the annual peak demand, the energy price by the energy withdrawn. For offtake points in low voltage with up to 100,000 kilowatt hours per year without capacity metering, i.e. typically households, an energy price is set instead. Optionally, a monthly basic charge is added, which must be in an appropriate proportion to the energy price.

The structure of the charges affects distribution. If grid costs are spread predominantly over every kilowatt hour consumed, customers with high consumption pay more, even if they do not use proportionally more grid capacity. If capacity-based prices are used more, the highest load placed on the grid is what mainly counts. Both forms set different incentives. The rules are currently changing: because of a ruling of the Court of Justice of the European Union, the StromNEV expires on 31 December 2028. The Bundesnetzagentur (Federal Network Agency) is working on a new grid charge system (AgNes), which is to apply from 2029. It put the final draft out for consultation on 6 August 2026, and the determination is planned for the end of 2026. According to the state of affairs presented, grid charges are to be linked more strongly to capacity held available. Household customers in low voltage are to continue paying a basic charge and an energy price, with a capped basic charge to become mandatory. Until the final determination, these points are a planning status and not applicable law.

Fixed costs, capacity utilisation and unit costs

How much weight fixed costs carry depends on capacity utilisation. If a plant with high fixed costs generates or transports many kilowatt hours, the costs are spread over a large quantity, and the fixed costs per kilowatt hour fall. A simple worked example: if annual fixed costs are 100 euros per kilowatt of capacity, 2 cents fall on each kilowatt hour at 5,000 full-load hours, but 20 cents at 500 full-load hours. Low utilisation does not automatically mean, however, that a plant is superfluous. A reserve power plant, a grid section for rare load peaks or a storage facility for bottlenecks can be valuable to the system even though it runs rarely. Business-economic utilisation and contribution to security of supply do not always coincide.

This relationship is important for the distinction between power and energy. Electricity consumption is measured in kilowatt hours, but the load on the system is also measured in kilowatts or megawatts. Anyone who briefly draws a very high power can require grid capacity even if their annual quantity is small. Conversely, steady consumption with a high annual quantity can burden the grid less than a strongly fluctuating load profile with the same amount of energy. Fixed costs make visible that not every kilowatt hour has the same consequences for the infrastructure.

With the expansion of wind power and photovoltaics and the electrification of heat and transport, the cost structure shifts further towards fixed and capacity-related costs. Generation plants without fuel costs, grids for new loads, charging infrastructure, connections for heat pumps, storage and digital control require investments before it is known how heavily they will be used. Running fuel costs lose weight in relative terms. Financing conditions, risk allocation and capacity utilisation thereby become more important. An electricity system with low variable costs is not a system without costs. The costs are simply committed more strongly in advance and distributed through rules.

Typical misunderstandings

Fixed costs are said to be unchangeable: In the short term they often cannot be influenced. In the long term they can certainly be changed, for example through decommissioning, different maintenance strategies, more efficient grid planning, shared use of infrastructure or the avoidance of unnecessary load peaks. Whether a cost item is fixed depends on the time horizon. For a power plant's schedule on the next day, the capital costs are fixed. In the decision on new construction, continued operation or dismantling, they form part of the economic assessment.
Fixed costs are said to be neutrally allocable to kilowatt hours: If fixed costs are financed via energy prices, every additional kilowatt hour appears more expensive even though it does not cause the fixed costs. This can disadvantage desirable electricity applications such as heat pumps or electromobility. Conversely, greater financing via basic or capacity charges also has social effects and changes behaviour, for example because high-volume users are relieved and customers with low consumption are burdened more. The costs do not disappear through a different tariff structure. They are merely distributed differently, and this influences investment and consumption decisions.
Low marginal costs are said to mean low total costs: Marginal costs are the costs of an additional unit. For plants with high fixed costs they can be close to zero, while the refinancing of the plant remains open. This shapes markets with many renewable plants. Many hours with very low exchange prices are cheap for consumers. They do not automatically bring in enough revenue for new firm capacity, storage or grid services, however. In the debate, this possible gap is called the missing money problem. Whether and how strongly it exists depends on market design, scarcity prices and contract forms.

Fixed costs are therefore not a peripheral concept of cost accounting. They explain why electricity prices, grid charges and investment decisions cannot be understood solely from the kilowatt hour generated. The concept shows which costs arise from provision, availability and infrastructure before electricity flows. Used precisely, it separates short-term dispatch signals from long-term financing. It makes visible that electricity systems must be organised simultaneously through energy quantities, capacity, time profiles and institutional rules.

Sources

Stromnetzentgeltverordnung (StromNEV) § 17 Ermittlung der Netzentgelte — Bundesministerium der Justiz / gesetze-im-internet.de; unbekannt (konsolidierte Fassung). § 17 Abs. 2 und Abs. 6 StromNEV
Bundesnetzagentur startet Konsultation zur Reform der Netzentgeltsystematik Strom — Bundesnetzagentur; 2026-08-06. Pressemitteilung, Haupttext und Abschnitt Hintergrund
Bundesnetzagentur stellt aktuelle Überlegungen zur Reform der Netzentgeltsystematik Strom vor — Bundesnetzagentur; 2026-05-27. Abschnitt Haushaltskunden und Prosumer
Studie Stromgestehungskosten Erneuerbare Energien, Juli 2024 — Fraunhofer-Institut für Solare Energiesysteme ISE; 2024-07. Abschnitt Berechnung der Stromgestehungskosten / Methodik-Anhang (laut Suchergebnis)

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Edited by eCMS on 11.11.2026 19:47