What is a spot price?
A spot price is the wholesale market’s price for electricity that power providers pay.
They change every half an hour, and spot prices depend on supply and demand. That’s why prices are prone to dramatic changes. Naturally, spot prices go up in winter, as well as during weekdays on breakfasts and dinners.
What does buying power at the spot price mean?
Most power providers use a flat rate charge system, meaning that the price you pay does not depend on the time you use it, or the spot price that your energy provider paid. As an alternative, you could go with a retailer who’s offering a spot price contract. That way, the final price for you will directly depend on spot prices.
Due to the fact that spot prices are changing every half an hour, your final power bill will include a range of rates.
There are advantages to buying energy at spot prices. You can save some money at times when spot prices go low, as opposed to paying a fixed price for your electricity consumption.
But, it goes both way. In case spot prices go higher than a power company’s flat price, you would pay a lot more than a standard fixed price.
Usually, power companies add a lot more on top of the average spot price they pay for electricity. By setting a premium fixed price they minimize their losses, and typically, profit greatly in the process. As an alternative, you can take responsibility for yourself, and always be in charge for your bills.
Key factors to take into consideration if you consider a spot price contract:
- budget carefully for varying prices from month to month. Sometimes they might be higher than a fixed retailer’s price.
- at times the spot price gets higher, try to reduce your power usage during peak times.
- keep track of your power usage regularly (by using online tools in case you have a smart meter)
- keep an eye on spot prices
There are risks and rewards to using both: fixed and spot prices. The decision is your, but it’s always better to be educated and have various types of contracts, as well as power providers to choose from. At Power Compare, we provide you with such a choice.
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