Ever heard of the term ‘price spike’? If you’re reading this blog, it’s likely you have. And it’s also likely you’re a little concerned by it – and that’s totally understandable.
But as our CEO, Steve, likes to say, the electricity industry is just like buying strawberries (yes, really – trust him, he knows his stuff). That means that just like the price of buying strawberries at different times of the year, the spot market really does reflect the relative abundance or scarcity of electricity at different times (see, it does make sense!).
So, in the interest of calming those price spike fears, we thought we’d lay out the facts to see what’s happening, why, what it means for you and how you can best manage it.
What is a price spike?…
By definition, a price spike is when the spot price rises above 30c per kWh.
The first thing to remember is that the wholesale spot market is just that; a market where prices adjust every half hour based on the shifting levels of demand for and supply of electricity across our country. And just as with Steve’s strawberries, that means the price of electricity will fluctuate throughout the year.
But here at Flick, we believe that markets work much better when they make prices transparent to consumers, informing them about the relative availability of the product being bought. And, as a Flick customer, we know you think this too! Electricity is such an amazing product that we all need, but we sometimes forget that it’s a finite resource and one that always comes at a cost.
The ups and the downs…
Over the course of each year it’s very normal to experience variability in prices, with some months (or years) fluctuating more than others. Some of these changes come in the form of price spikes, with a really high price. Most often, these price spikes have occurred when we’ve seen very significant national demand. And they were the kind of price levels Flicksters tend to notice and remember as they can genuinely impact a bill week when they occur.
Despite these anxiety-inducing spot prices, it’s a good idea to take a few deep breaths and look at the overall picture. Because electricity trends show that we have significantly more low and average prices than high:
So while you might feel like freaking out when you see those prices heading skywards, it’s good to remember that they’re really just a wee wave in an overall calm sea.
What drives these price patterns and some high price spikes?
Good question! Usually, it’s linked directly to supply and demand. In 2016 we saw prices spike due to the decommissioning of thermal generation plants that often supplied higher demand periods. We understand these plants could no longer justify operation, as generally lower wholesale prices meant they were rarely being used profitably. Put simply, this meant that there was less generation capacity available in total, but specifically less generation that traditionally supports peak demand. So when demand was very high a few times last year, the missing generation contributed to a small number of much higher prices.
Last year we also saw a few price spikes in the winter months. Water storage throughout last winter averaged around 130% of normal storage levels, which is good because it suppressed wholesale spot prices by reducing the reliance on thermal generation, which is typically more expensive. But higher water storage can also result in some generation plants being turned off, as there is no justification for running them whilst hydro generation dominates. Last year that meant a number of generation plants were effectively unavailable during the few very high demand periods.
What this has meant to Flicksters:
The great news is, whilst we’ve faced a handful of big price spikes over the past couple of years, Flicksters have collectively come out on top, saving an average $417 over the past 12 months compared to what they would have paid with their previous retailer. It really is a long term game. If you can ride the highs and the lows of the spot market, we reckon you’ll be better off the long run.
If price spikes worry you, what you can do about it?
We have some clever little tools and tricks to help Flicksters take control of their power bills, especially during high price events. The CHOICE app offers simple, real-time market price information, with push notifications that will alert you when the price gets high. During a price spike, we recommend turning off any unnecessary appliances or switches. Keep warm, lights on where you need them and be sensible about turning things off.
Because price is determined by the levels of supply and demand in the market, responding to a high price by switching things off contributes to a reduction in demand, thereby improving the supply-demand situation. Equally, getting into the habit of using power at low-demand times of the day, like late evening or overnight, reduces the likelihood of a price spike.
Understanding how the electricity market works, why price spikes occur and what you can do to influence them will empower you to manage price events and help make the savings we know are possible with the Flick model. For more, read our blog Price Spikes 101.