How Does Spot Pricing Work in New Zealand?
Spot pricing is the wholesale market price for electricity that power providers pay. The spot price changes every half an hour, and the price can vary quite dramatically depending on both the demand and supply. Spot prices are typically higher during the winter time, and weekdays during breakfast and dinner time.
Most electricity providers charge customers at a flat rate. This means that you pay the same electricity rate regardless of when you use it and what spot price the retailer paid for it. With spot pricing, the final price you pay will directly depend on what the wholesale market price for electricity is at the time.
Let’s take a further look into spot pricing, to help you determine whether a spot price contract is right for your home or business.
What are the benefits of spot price electricity?
Purchasing electricity at the spot price can have its advantages. Here’s what you have to benefit from spot pricing:
- When spot rates are low, you may be paying substantially less for electricity than you would on a fixed contract (where the prices remains the same)
- You can temporarily reduce your power usage when spot prices are higher (for example, using appliances during off peak times)
- Power companies typically have month to month terms with spot pricing, allowing you to switch providers any time you want
- You’re in complete control of your bills, allowing you to monitor the market rates and change suppliers to ensure you get the best electricity deals
When it comes to disadvantages of spot pricing, the biggest one would be that there is the possibility that electricity rates can increase at a moment’s notice. If you’re not able to regularly monitor electricity market rates, spot pricing may not be the best option for you.
How is the spot price for electricity determined?
How strong is the wind blowing at the moment? Are schools closed for the holidays right now? Has the price of coal risen? When it comes to determining the spot price, there are a number of variables that can influence this.
Unlike natural gas, copper or cereals, electricity cannot be stored - instead it is produced at the exact moment of demand. All of the factors that affect supply and demand have an immediate impact on what the spot price is. Because of this, the price for electricity the next day is subject to considerable fluctuations.
Other factors including capacities of power plants and other energy source systems, their technical condition and any unplanned outages will also have an effect on the supply and demand of electricity.
Spot pricing for businesses
A huge benefit for businesses that use spot pricing is that when electricity prices are lower, they can end up paying considerably less than those businesses that are on fixed price contracts. You get to purchase the energy you use at the time when the market is at its best.
Suppliers are generally happy to offer you some sort of guidance when investing in spot pricing, so your business won’t have to go it alone. Each electricity supplier offers different perks and ways for you to stay informed when it comes to the current market.
Flick Electric was actually the first NZ electricity company to use proprietary software and smart meter technology to allow customers real time access to current wholesale costs.
Spot pricing for residential
For many years now, the typical Kiwi homeowner will be signed up to a fixed rate electricity contract. However, over the past few years more and more power companies have been offering spot pricing to customers in order to pass on wholesale electricity costs without any markup.
With an increase on companies encouraging customers to consider spot pricing contracts, Kiwis are now seeing the potential to save money on their power bills.
It’s important to keep in mind though that spot pricing isn’t for everyone. This type of electricity contract is best suited to consumers who can actively monitor their electricity usage. It may also be beneficial for customers to first look at their historical usage and consider this in the context of spot pricing.
Comparing spot pricing vs fixed pricing
If you’re considering a spot pricing contract over a fixed price contract, it’s important to first consider whether you can:
- Budget carefully - as prices can vary dramatically from month to month
- Adjust your power usage - when spot prices are particularly high, you’ll need to try and reduce your power usage during these peak times
- Monitor usage and prices carefully - you’ll need to keep track of both your power usage and keep an eye on the current spot prices in the market
If you’re unable to do the above easily, your best option would be to stay on a fixed price contract. That way, you can have complete peace of mind that your monthly bills won’t drastically change depending on the current spot price.
Here’s a recent example of someone who regretted signing up for spot pricing - this Wellington homeowner was left blindsided with a hefty bill as spot power prices surged.
Get the best power deals
When it comes to finding the right electricity provider for your home or business, Glimp has the tools you need to find the best power deals around.
Using our online comparison tool, you can compare New Zealand’s best electricity providers and plans and find a company that can offer you the lowest electricity rates. It’s easy to use and 100% free to use - all you have to do is enter where you live, your current power supplier and how many people live in your home.
Glimp will provide you with the best options, including how much you could be saving if you switch providers. Get started today on saving with fairer, better fitting power plans - compare power companies now.