If you’ve only ever paid a fixed price for your power, you’re not alone. In fact, it wasn’t even a possibility to purchase power at the spot price, straight from the wholesale market, until Flick’s Wholesale plan - formerly known as Freestyle - hit the scene back in 2014!
So, what exactly is spot pricing, and how does Wholesale work? Let’s take a look.
What’s spot pricing?
Just like a number of other products and services we consume, electricity is bought and sold on a wholesale market. The ‘spot price’ of electricity is the wholesale price of power, or the cost of buying it directly from the wholesale market. Spot prices change every half hour, shifting up or down depending on market influences, and transition through four different stages before we know the final price.
Why do spot prices change?
Lots of reasons! As with most markets, spot prices are related to supply and demand. When demand is high and the supply of electricity available is stretched to meet it, spot prices are higher, and when demand drops, spot prices tend to drop too.
But there are also a number of other factors that can push prices up or down, including:
- The availability of renewable generation, like hydro and wind power, which is a cheaper, cleaner source of electricity. If our renewable generators can’t produce enough electricity to meet demand, then gas, coal or diesel generators are turned on. They’re much more expensive to run (and they produce lots more carbon emissions) and that means more expensive spot prices.
- Weather conditions. The supply of our renewable, cheaper generation is influenced by the weather, including rainfall in and around our hydro dams and windspeed at our wind farms. Likewise, temperatures can influence demand too; a cold snap will push demand and spot prices up, while warmer weather can see demand (and spot prices) drop right down.
- Any outages or problems with our electricity infrastructure. Outages at generation plants result in less available power, which makes it more likely that higher cost backup generation will need to be used. Infrastructure outages can also cause localised high spot prices.
When are spot prices higher?
In general, the movement of spot prices mirrors the daily and seasonal changes in supply and demand. We tend to use most of our electricity first thing in the morning before school and work, and again in the early evening when we’re all home (these are known as ’peak’ times). This increase in demand naturally reduces available supply and pushes up spot prices. We also use more power during the colder months, thanks to those slow-cooked roasts, toasty electric blankets, and heat pumps running round the clock.
Sometimes, though, we see spot prices drop right down in the winter months. Why? Lots of wind and rain means lots of cheap, renewable energy generation, and nice, low spot prices!
And when are they usually lower?
As you’d expect, our collective power use tends to drop off during the middle of the day when folks are out and about, as well as the middle of the night when we’re all in bed catching some zeds. These times are known as ’off-peak’ hours. You’ll also find that power use is lower during the summertime, thanks to those long, warm days of line-dried washing, barbecued food, and refreshingly luke-warm showers.
But occasionally spot prices can creep upwards in the summer months, too, especially if there’s little in the way of wind and rain. Low hydro lakes, in particular, can see our spot prices shift up a gear because the supply of renewable generation that we rely on most drops away.
Why are spot prices different around the country?
Good question. Spot prices will be the same for all customers on each Grid Exit Point (or GXP), where electricity flows out of the National Grid and into your local power lines. As a rule of thumb, spot prices at GXPs get higher the further away they are from the site of generation, and that’s all down to the cost of transferring power from the generation site to each individual GXP. Generally, because the majority of hydro lakes are in the South Island, spot prices tend to be lower for our southern Flicksters compared with, say, those living in the balmy climes of Auckland.
It does pay to remember that generation only makes up a portion of your power bill. On top of that, you’ve also got costs for things like transmission, distribution, metering and levies.
Still got questions? Get in touch via the ‘Contact Us’ link below.