The electricity industry has its complexities, but here at Flick Electric Co. we try our best to unravel the knot that is power pricing. We’re on a mission to be completely transparent, giving Flicksters access to the spot market price of power and empowering them to monitor and change the way they use electricity to make killer savings.
But this is more challenging than it might seem. The cost of electricity is influenced by a number of factors – something we saw first hand during the Port Hills fires in Christchurch earlier this year, when supply was fragile and the market volatile due to the ongoing threat of fire.
So we’ve compiled a bit of info to help explain how pricing is determined, how price spikes might occur and why you might sometimes see a price estimate rather than a final price on your weekly bill.
The life cycle of power prices
The spot prices you benefit from with Flick are forecasted regularly. We receive forecast prices for the next four-hour period every 30 minutes and load them into your Flick customer app (the one you access through our website) – you can see them on the ‘Snapshot’ and ‘Today’ tabs of your dashboard. Although these are a good indication of final pricing, from time to time they may not reflect the actual price you pay.
There are four stages spot prices go through from forecast to final, each progressively more accurate than the last as the market gets closer to reaching a final price based on supply and demand:
- Forecast prices: Forecast prices are calculated based on the energy generation available, the ability to move it around the country, the anticipated user demand for power, and what other retailers are willing to pay for that power. Forecast half-hour prices are calculated every half-hour for 250 locations across New Zealand – these are the prices you can see on your price needle and the ‘Today’ tab in the customer app (along with your other variable charges such as the network price, EA Levy and Flick fee) until we receive interim prices.
- Provisional prices: These prices are calculated immediately after electricity has been generated and consumed, or the next day. You don’t see these.
- Interim prices: Interim prices better reflect how much electricity was used across New Zealand. You’ll see these prices on your price needle and your ‘Today’ tab until we receive final prices. Interim prices give us a good indication of where final prices will land, and most often these prices become final, unless they are challenged.
- Final prices: These are an accurate calculation of the market price based on exact supply and demand. Final prices are usually available from the market two business days later, and this is the price we display on the ‘Analyse’ tab of your dashboard and use to bill you.
The forecast price does not become the final price, but in 99.5% of cases, when the market and system work under normal conditions, it’s a close reflection of the final price.
In reality though, things sometimes happen that mean there’s a difference between what’s forecast and what actually happens in the market. Cold weather, storms, generation shortfalls (some power stations not producing as much electricity as normal), transmission constraints (limited ability to move power around the country) and local network outages can all affect supply and demand, which in turn affects pricing.
Sometimes there’s a delay in final prices being available in time for billing. If that happens we’ll provide you an estimate based on the most accurate prices available, then reconcile any difference between that and the final price once released, normally in time for your next bill.
What about infeasible pricing?
Well, this just means that the system operator (Transpower) doesn’t have all of the data it needs to calculate accurate prices for certain half-hourly periods. In the interim they use an extreme ‘placeholder’ (or stand-in) price of 50,000 cents per kWh in the data they send us, to signal ‘infeasible pricing’. If you’re a Flick customer, we’ll let you know in your CHOICE app that we’re getting some unreliable pricing information, and you should hold tight. Your daily total will be adjusted when we receive the final prices from Transpower in around two days time, and they’re normally similar to the 2 half hour periods either side of the infeasible pricing event.
So, where do 5-minute prices fit?
To complicate things further, 5-minute indicative prices, often called “real-time prices”, are calculated at the end of each 5 minute period for every location too. They take into account the conditions of the power system at the beginning of the relevant 5 minute period. There is lot of variability in these prices, and Flick does not currently use them in its alerts or pricing tools, however they are available via other sources (Electricity Market Overview, Wholesale Information Trading System and Nodewatch). This is why you might receive an alert from these services despite not receiving one from the Flick app, or why you might see a different price displayed compared with your Flick tools.
Want to know more? Read up on the impact of price spikes in our ‘Keep calm: it’s just a price spike’ blog.