How the electricity price is determined
Market prices are the result of supply and demand. This has also been the case for electricity since the energy markets were deregulated. The electricity price on the exchange is the guideline for all transactions in electricity trading.
The times of monopolistic enterprises supplying electricity to a clearly defined area – largely excluding the risks of buying and selling - are over. Before 1998 deregulation in 1998, competition and trading only took place to a limited extent. The new Energy Industry Act created a completely new economic framework with the objective of opening up the markets. A wholesale market for electricity developed soon after.
The price is no secret
Are schools closed for holidays at the moment? How strong is the wind blowing? Is the coal price rising? All of these variables and more influence the electricity price.
Unlike natural gas, cereals or copper, electricity cannot be stored. It is produced at the exact moment of demand. Therefore all the factors that influence supply and demand have an immediate impact on the price on the spot market. As a result the electricity price for the following day is subject to considerable fluctuations. However, on the forward market long-term projections are reflected more strongly in the price. On the supply side the electricity price is heavily influenced by fuel prices – for coal, gas and oil – and the prices for CO2 allowances. Wind and weather are also very important. They determine how much electricity is generated by wind turbines and hydroelectric stations.
Furthermore, the supply depends on the capacities of power plants, their current technical condition and planned overhauls or unplanned outages. On the demand side the weather also plays an important role. Temperature and cloud cover influence consumer behaviour directly. It is also affected by changes in the state of the general economy. Other factors that might influence consumer behaviour are school holidays or public holidays. And, of course, fluctuations in the global economy: a huge thirst for energy, in particular in the Far East, caused a strong increase in the price. Due to the economic crisis the demand was greatly reduced. As a result the electricity prices on the exchanges fell. The markets work.