The price of electricity is made up of many different factors, and the price of electricity varies both electricity contracts between, and according to the fluctuations of the stock market. Price rises and falls in the electricity market have led many Finns to pay increasing attention to the content of their electricity bills. Electricity is a major expense, especially for Finns living in larger households and those who own several properties. So what does the price of electricity consist of and what factors influence its price?
What makes up the price of electricity?
The price of electricity is made up of three different components: the electricity energy component, the electricity transmission component and various taxes, such as electricity duty. Electricity energy, the electricity we consume, is the electricity that is sold to us by the electricity supplier. The price of electricity consists of a fixed basic charge, normally charged monthly, and the amount of energy consumed, which can vary significantly between households and properties.
Price of electricity
The consumption charge, i.e. the price of electricity, is always the same for universal electricity (cents/kWh), whatever the time of day or season. For time-of-use electricity, the consumption charge is divided between day and night, and for seasonal electricity, the consumption charge is divided between winter electricity and electricity used at other times of the year. For spot electricity, the price is determined by the spot price on the Nordpool electricity exchange, which changes from time to time.
Price of electricity transmission
Electricity transmission is the transport and distribution of electricity from an electricity utility to a consumer. This task is always carried out by the local distributor, which is why it is not possible to put electricity transmission out to tender. The price of electricity transmission consists of two elements: the basic charge and the amount of energy transmitted.
The rest of the electricity price is a tax. In addition to electricity and electricity transmission, consumers pay VAT, electricity tax and a security of supply levy on their electricity. The electricity tax is billed together with the electricity transmission and its amount is affected by the amount of electricity consumed. Currently, the electricity tax is charged at around 2.79 cents/kWh.
Electricity price composition
When looking at the electricity contract as a whole, the share of electricity, transmission and taxes is usually almost equally divided.As a rule of thumb, about one third of the electricity price paid is electricity, one third is transmission and the rest is taxes.
Is the price of electricity always the same?
The price of electricity does not always remain the same, as pricing is influenced by a number of factors. The price of electricity is determined by the costs associated with electricity production, the source of electricity (e.g. mixed, bio-electricity, fossil-free) and the current market. Consequently, changes in the market - for better or worse - are also directly reflected in the price of electricity.
Buying electricity on the Nordpool exchange
The Nordic countries have their own common electricity exchange, Nordpool, where all electricity producers sell their electricity. This allows local electricity companies to buy their electricity and then sell it on. Similarly, they can also produce their own electricity in local power plants and sell it to consumers.
Factors affecting the price
If the cost of generating electricity rises, the price of electricity will also rise. In the Nordic countries, the main factors affecting the price of electricity are not only production costs, but also weather conditions. In the Nordic countries, much of the electricity is generated using hydro and wind power, and changes in weather conditions also affect the price of electricity. For example, consumers may find that in colder than normal winters, the price of electricity spikes higher.
Transfer prices often stable
Unlike electricity, transmission prices for electricity tend to remain relatively stable. This is because the distribution companies responsible for the transmission of electricity have a so-called monopoly position, which makes it impossible to put electricity transmission out to competition.
The area affects the transfer price
However, there may be regional differences in electricity transmission prices. Generally speaking, in more densely populated areas, electricity transmission prices are cheaper because the costs of electricity distribution are lower. In less populated areas, electricity transmission costs increase. However, transmission companies cannot charge consumers what they want, as transmission pricing is controlled by the Energy Agency. The amount of electricity tax is decided by Parliament.
Impact of the type of electricity contract on the price of electricity
It is worth bearing in mind that the price of electricity is also affected by the type of contract. A contract can be either a fixed-term contract or an open-ended contract in terms of its duration and binding nature. However, the price of electricity is more influenced by the type of contract billing - electricity can be billed either as a fixed package, as a fixed price per consumption or as 'exchange electricity'. Of these, exchange-traded electricity has been the cheapest type of contract over the long term, but on the other hand, short-term price fluctuations can be quite large for this type of contract.
Fixed-term electricity contract
In the case of a fixed-term contract, the consumer must pay for the electricity to the declared electricity seller for the duration of the contract. A fixed-term contract cannot normally be terminated except in the event of a move. In the case of a fixed-term contract, the price of electricity varies at predetermined times. The duration of fixed-term contracts is usually 24 months. In general, electricity companies offer fixed-term contracts at a lower price than open-ended contracts.
Agreement for the time being
An open-ended electricity contract is a contract that can normally be terminated at any time. In this type of contract, the price of electricity is usually market-driven and will be reviewed from time to time according to the timetable set out in the contract. Most exchange-based electricity contracts are also in many cases open-ended electricity contracts. In most cases, prices are higher for open-ended contracts than for fixed-term contracts, and the margin for an open-ended exchange-traded electricity contract, for example, may be higher than for a fixed-term contract.
Fixed price and exchange electricity
In addition to fixed-term and open-ended contracts, there are two different types of electricity contracts: fixed-price and exchange-price electricity contracts. In the case of exchange-traded electricity, the price per kWh of electricity is directly linked to the current market situation, i.e. if demand for electricity increases, the price of electricity also increases. Conversely, the less demand there is for electricity, the cheaper it is. The price of electricity on the exchange fluctuates constantly. The changes are usually not large, but in this case, fluctuations can occur on a daily basis. The price of exchange electricity is determined by the price of electricity as recorded on the Nordic electricity exchange Nordpool.
The price of fixed-price electricity is similar to a fixed-term electricity contract. In this type of electricity, the price of electricity remains the same as long as the electricity contract is in force. Currently, most electricity contracts signed by Finns are fixed-price contracts.
Where to find the cheapest electricity contract?
As electricity consumption is a major expense in many Finnish households, it is important that everyone pays attention to their electricity contract. In Finland, electricity contracts can be freely tendered for electricity. It therefore does not matter where in Finland you buy your electricity, as the local distribution company is always responsible for the distribution of electricity.
Electricity market prices live and change according to the current global situation. For this reason, companies selling electricity must also update and change their prices on an ongoing basis. This is why it is important to remember to put your electricity contract out to tender at regular intervals, as an electricity contract signed a few years ago may already be the most expensive today.
In short, the price of electricity consists of three main components: the price of electricity, the price of the electricity transmission service and various taxes, namely VAT, electricity tax and the security of supply levy.
Although the rule of thumb is that each component accounts for about one third of the total electricity bill, the different components of the price are also influenced by where the electricity is used and how much electricity is consumed.
Electricity tendering brings savings easily
By tendering your electricity contract through us you can easily influence how much you pay for electricity. The easiest way to compete for electricity is to include your most recent electricity bill. You can also tender for electricity without an electricity bill if you know the address of the site and can estimate the electricity consumption as accurately as possible.