Exchange electricity, i.e. market price electricity contract is a type of electricity contract where the price of electricity is determined by the exchange price of electricity, which changes momentarily. The exchange price of electricity is determined by the spot price of electricity on the Nordpool electricity exchange in the Nordic countries, which changes from time to time, plus a margin for the electricity company. Depending on the electricity company and the contract, the electricity contract may also include a fixed monthly price.
How is the price of electricity determined?
Instantaneous spot price
Spot price of electricity on the exchange is made up of Nordpool power exchange according to the hourly market price. On the Nordpool exchange, the price of electricity can change every hour of the day, which makes it slightly more difficult to predict the size of the electricity bill for exchange electricity than for fixed-price contracts.
Electricity company margin
In addition to the spot price of electricity, a margin is added to the electricity price by the electricity company. The margin varies depending on the electricity companies and contracts, usually between 0.15 and 0.4 cents per kwh. The size of the margin also depends on whether you want to use electricity generated by wind power, for example, 100%.
Basic electricity contract fee
In most exchange electricity contracts, the contract also includes a basic payment, i.e. a price to be paid every month, regardless of the amount of electricity consumed. The basic charge is usually between €3.5 and €5/month for exchange-traded electricity contracts. Sometimes, electricity companies also offer deals where, for example, the first 6 months of the contract are €0. When choosing such a contract, it is always worth checking whether it is a fixed-term or open-ended contract. In general, exchange-traded electricity contracts are for an indefinite period.
What are the benefits of electricity from the stock exchange?
Optimising electricity use for the most advantageous hours
Exchange electricity allows electricity use to be optimised for the cheapest hours, which can bring significant benefits, especially in an electrically heated detached house. By optimising the use of electricity, the heating of the house can be optimised for the cheapest hours, i.e. in practice for the night.
The cheapest option in the long term
Exchange electricity is also generally the cheapest type of electricity contract in the long term. In the short term, exchange-traded electricity can offer large fluctuations in electricity prices, which can sometimes make electricity bills surprisingly high. In the long term, however, this tends to even out, making exchange electricity the cheapest option overall. However, for a person who wants short-term predictability, for the reasons outlined above, exchange electricity may not be the best choice.
You don't pay for nothing
With exchange electricity, you pay the market price for your electricity, so you are always aware of what your electricity company's share of the price is. The price of electricity is determined by the spot price for that hour. So with exchange electricity, you are not accidentally paying hidden costs that have been added to the price by your electricity company. In practice, all other types of contract carry a risk for the electricity company, calculated on the price, if the price of electricity starts to rise in the future. In the case of exchange electricity, there is no such "air" in the price - although the risk of a price increase is yours.
Consider these when ordering electricity from the exchange
If the exchange-based electricity contract sounds like the best one for your needs, there are a few things to consider before you sign up.
You can order a contract from any Finnish electricity company
In Finland, you can order an electricity contract from any domestic electricity company. Only the electricity transmission is determined by the regional grid companies. So when choosing an electricity contract, it is worth remembering that you can buy electricity from any company that sells electricity, and you may find surprisingly good deals from slightly less well-known companies.
Electricity company margin
When ordering electricity from the exchange, you should pay particular attention to the electricity company's share of the margin. In the case of exchange-traded electricity contracts, there is practically no difference in anything else, as the price of the electricity itself is determined by Nordpool's spot price in the same way for all companies. For this reason, when comparing contracts, it is strongly recommended to check the margin of the electricity company.
Basic electricity contract fee
Many exchange electricity contracts include a basic monthly charge of a few euros. While this cost is usually insignificant in relation to the price of the electricity itself in electrically heated detached houses, the basic charge can be a surprisingly large proportion of the electricity bill in a small apartment block. In most cases, therefore, the cheapest option for apartment dwellers is to purchase an electricity contract without the basic charge, even though the price of electricity is usually higher for this type of contract.
Fixed-term or open-ended contract
Before ordering a new electricity contract, you should check the terms of the contract to see whether it is an open-ended or fixed-term contract. It is usually not possible to terminate a fixed-term contract without additional charges, except when you move house. An open-ended contract, on the other hand, can be terminated at any time with 14 days' notice, without any charge.
Competing for electricity at regular intervals can bring surprising savings
Electricity tendering is an easy way to save on everyday essentials, and it usually takes no more than a few minutes to tender for electricity. The first step is to look for your previous electricity contract, which shows how much electricity you used and the price of electricity in the previous contract period. This will make it easy and straightforward to find and order a new, cheaper contract. It is always a good idea to read the terms and conditions of your electricity contract carefully before ordering.