With that in mind, we often hear from Flicksters wondering who they’re paying when prices spike – good question. If you’ve entertained the idea that Flick was pocketing extra money from higher spot prices, we’re pleased to tell you we’re not! Here’s the low-down.
What’s going on, Flick?!
Price spikes are not caused by us hiking up our bit of your bill, we promise! The Flick business model offers customers access to the wholesale cost of power – that means you’re not paying a fixed rate: rather, you’re paying the exact cost of power on the wholesale electricity market (also known as the spot price). Then you’ve got costs like metering, and transmission and distribution in there, too – if you’re watching the price dial on your Flick app or dashboard, check out our blog ‘The Dial Guide – what’s driving your price?’ to see how the costs are broken down.
There’s also our Flick fee, which is what we charge as your retailer. If you’re unsure what our costs are, check the ‘Bills’ tab of your dashboard to see exactly what portion of your electricity bill is paid to Flick. Because, folks, that’s it. That sum is all that we take from your bill in order to provide you with our awesome services. You pay the spot price, and you can rest assured that, while the energy component of your bill varies, we don’t make any more, or less, profit because of this.
So, then, where is my money going?
That, folks, comes down to generation. NZ has five main electricity generators – Meridian Energy, Contact Energy, Mercury Energy, Genesis Energy and TrustPower, plus there are a number of smaller generators too. They produce electricity from a number of different sources, like thermal, wind and hydro. The generators sell the electricity on the wholesale market to electricity retailers like us here at Flick, and it’s then onsold to individual customers and business (like you!).
Electricity can be purchased on two separate markets: the hedge market and the wholesale/spot market. Hedging is where retailers purchase a specific amount of electricity (they can buy cover for the bulk of their power this way) from a generator at a fixed price, over a long period of time. It’s basically like a form of insurance helping to manage market volatility, and historically they’ve paid more than the spot price by using the hedge market. But it means they’re able to offer you a fixed rate that they know won’t lose them money.
On the spot market, the value of electricity changes every half hour, depending on offers from generators and demand in the market (get an overview of how spot prices are set). When supply for power is stretched to meet demand, the spot price tends to increase.
The types of generation in the mix also impact spot prices. When electricity from cheap, renewable sources like wind and hydro are unable to meet demand, more expensive sources like gas or coal are fired up and poured into the mix. Why are they more expensive? Because this kind of generation is more costly to run.
So this is a bad thing for Flick, right?
Well, it’s not great when Flicksters have to pay more for their power. But one big benefit of our business model is that it allows us to recognise that the market isn’t perfect – it has its ups and downs. The price we pay for power on the wholesale market reflects our environmental conditions and acknowledges that our resources are finite, because when they’re in low supply we need to manage our use accordingly and in a socially responsible way. And, overall, spot prices on the wholesale market tend to be lower than the set rates of retailers and the costs they pay to hedge (woohoo!). Check out the chart below to see where spot prices have landed since 1 January 2014.
As a consumer, you have the right to decide which retailer, and which business model, is best for you. What works for one person might not work for another, and we think it’s super important that our Flicksters, as conscious consumers, understand the way our business model works with the ups and downs of the electricity market. But, no matter who you choose as your power company, make sure you do your research and stay informed (if you’ve got questions, we’re only a phone call, tweet or Facebook message away): as we always say, knowledge is power!