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 (trust him, he knows his stuff). That’s because 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.
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 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. 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 or spiking prices. Take a look:
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. For example, in 2016 we saw prices spike due to the decommissioning of thermal generation plants that often supplied higher demand periods (we understand that lower spot prices meant these plants were no longer profitable). So, there was less power being generated overall, and specifically less generation that usually supports the times of peak demand. That contributed to a small number of much higher prices. Earlier this year (2018), we saw a brief price spike caused by a transmission constraint in the Hawkes Bay area.
What has this meant for Flicksters?
The great news is that 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 $350 annually (April 2018) 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.
What tools are in place to help Flicksters cope with price spikes?
We’ve got a couple for you. The Flick 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. Stay warm, keep 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.
We’ve also introduced Volt by Flick, a budgeting tool designed to help Flick customers manage the ups and downs of wholesale pricing. It lets you build up credit against your Flick account that’s only used when your bills reach a certain amount, chosen by you. By paying slightly more than your typical weekly bill, you’ll be stashing money away in your Volt for any weeks that you have bills that are over your chosen threshold. We hope that by having access to both spot prices and Volt, more Kiwis will be able to manage their power bills during tougher times.
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.