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Electric Wholesale Prices And Its Difference Against Retail Energy Rates

The media often reports about the increase in the electricity prices and while there are various key elements that affect its hike, it is often linked to electric wholesale prices. But what is its difference from retail electricity? Moreover, what is the relationship of the two?

Difference Of Retail Electricity From Wholesale Electricity

When a customer buys electricity from the utility provider or a retail electricity supplier, it is called retail electricity. On the other hand, wholesale electricity is when these suppliers and other entities, purchase and sell power on the wholesale market.

The Relationship Of Wholesale Electricity To Retail Electricity

Just like the regular market setting, the price of wholesale electricity is lower than the rate of retail electricity. This is because the price of the retail electricity has various charges added before it is delivered to homes and business premises.

Technically, the wholesale price of the market is consist of the purchasing fee while retail price is composed of the wholesale price, purchasing cost, delivery charge, and the taxes and state surcharges.

However, even if the electric wholesale prices decrease, the retail price will either stay the same or become higher. This is because retail electricity is not only bought from the wholesale market but also from the following transactions — power exchange (PX) transactions and over-the-counter (OTC) transactions.

Power Exchange transaction is regulated and monitored by the energy market authorities. It also offers standardised products. On the other hand, over-the-counter transactions are deregulated and are not under the surveillance of the market authorities. They provide both standardised and customised products and the products tailored according to the customer’s needs.

What Causes Wholesale Power Price?

The increase in the price of wholesale electricity happened many times, however, the recent one occurred in 2016. During its last quarter, the wholesale power market in the United Kingdom experienced numerous significant hikes in its half hourly rate. While it is partly caused by various changes in the fuel commodity prices and foreign exchange movements, there are other factors that contributed to its increase such as the disruption of electric supply and increased cost of energy.

Increased Cost Of Imported Electricity And Gas

The unfavourable outcome of British Pound vs. US Dollar and the Euro resulted in the increase of the imported gas and power’s price. Generally, UK’s gas comes from Europe, Norway, and Liquified Natural Gas (LNG) tanker deliveries that’s why it is dependent on the gas and marginal producer of electricity. Because of this, the wholesale prices were affected as it is the biggest driver for price changes.

Disruption To Electricity Supply Network

There were several causes of the energy disruption and one of which is the damaged cables. Apparently, Four out of eight cables were damaged during the Storm Angus. As a result, UK’s ability to import French electricity was affected, causing a tight supply.

Saving Electricity And Reducing Retail Power Price

While there’s nothing customers can do with the increase in electric wholesale rates, there are some tips on how to save retail electricity and reduce the electric bill.

Install Motion Sensor Device

One of the smart devices that help save electricity is the motion sensor. It automatically turns off the lights when no one’s around and turns it on when someone needs it.

Air Conditioner Maintenance

During the warm season, air conditioners are essential, and to maximise its efficiency, it’s best to maintain it a couple of hours each year with cleaning, changing the filters, and checking the motor.

Install Smart Meter

Aside from being outdated, traditional meters only give estimated bills. Smart meter, on the other hand, helps the user track the amount of energy consumed.

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